Portfolio management: Never put all eggs in one basket

Mr ABC started his business from a scratch. He worked day and night and followed very high standards of business ethics. The businessman earned a name in the society. He was known to be very credible. Businessmen would approach him to lend their money without even a guarantee. Suppliers were happy with his terms and payment schedules.

The businessman expanded his business and converted that into a big showroom. All was going well. He provided best to his kids – best education and facilities. All kids became professionals. All got very high standards of ethics and recognition in the society. Mrs. ABC spent full time in caring for her family and gave the best support to her children while they were studying. All got settled. It was a happy family. One of her children started investing in shares and started with an investment company. He started borrowing money as deposits in his company and paid very attractive interest to his depositors. All investors were very happy. This whole deposited amount he invested in shares. He was getting good trading profits from the stock market. One morning while reading a newspaper over a cup of tea, alarming news broke. A share scam was uncovered. The market crashed. His stocks started turning into just papers with no value to realize in the market. The broker committed suicide. This person lost his entire value of investment in one stroke. Depositors started demanding return of their money as he failed to pay interest on them.

Lessons drawn: Portfolio has to be managed in a manner that investments are made more in risk free, medium risk and high risk investments in that order. He put all his eggs in one basket – high risk, high return investments. This was the violation of a share trading norm – take only a measured risk, not a reckless one. And, also cover the risk through counter deals.