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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Tito L. Nisperos Jr. who wrote (10362)	11/4/1997 4:13:00 PM
From: Jacob Snyder	Respond to of 70976

With a portfolio of one stock only, margin would be a bad idea. LEAPS are probably better in your position. In the last month, as AMAT and SEG went down, CSCO and WPI held stable, so I didn't break into a sweat. I don't see any point in buying more than one semi-equip. When I first started looking at the industry, I agonized for a long time about which one to buy, or whether I should spread my money out among them all, to create my own sem-equip mutual fund. What made me decide to dump it all in the market leader was this: 1. High tech in general is a winner-take all industry. The leaders get the lions share of the available profits, and everyone else fights for the scraps. This is glaringly obvious in microprocessors, desk-top software, networking equipment, and other segments. Semi-equip is currently an oligopoly with high barriers to entry, and may be moving to a monopoly industry. AMAT is the obvious candidate as the Intel/Microsoft/Cisco of semi-equips. 2. All the stocks in the group move in lock-step. When one goes down, they all go down. Owning a group of stocks reduces volatility, and the chance of a margin call, only if the stocks move independantly. Even the analysts treat the industry as a undifferentiated mass, up-or-downgrading them all together. In February 1997 I held only one stock, AMAT. Since then, I've slowly diversified, but never bought more than one company per industry. I don't think I'm capable of understanding more than a few companies in a very few industries. I read somewhere that you reach near-maximal decrease in volatility with a portfolio of 8 stocks in 8 different industries. After that, volatility does not decrease much, and if you go up to 30 companies in 30 industries, then you might as well just buy an index fund. Maybe after I've been at this a few more years, I'll find 8 companies worth investing in.