Diversification Guarantees Mediocre Results At Best

Conventional wisdom usually does not work well trading the markets. You might hear something like "Now is the time to buy that stock, it's been going down, it's cheap and a great deal now". Then back in early 2000, some of the so-called stock market experts said something like this, "The current bull market in stocks is different this time, it may never end". Well, so much for listening to some of the so-called experts. There are many reasons why most people lose trading the markets.

Legendary traders, past and present, believe for the most part that diversification is a crutch for ignorance when it comes to trading or investing. One of the greatest traders who ever lived, Gerald Loeb, stated the following. "Over-diversification acts as a poor protection against lack of knowledge". There is no good reason to diversify your investments if you truly know what you are doing. If you possess sound trading knowledge that has been proven successful decade after decade, you would only trade the very best opportunities which put the odds strongly in your favor.

The most successful traders in the stock market will focus on the general market direction, the top sectors and the leading industry groups. Then using expert timing, they will only buy a leading stock from these top groups. The general market must be in an uptrend at this time. Solid money management must also be implemented. The diversification crowd will tell you to buy a stock from each sector and this will protect you. If you want to have really good trading results, that is nonsense.

There's a reason why great traders such as William J O'Neil, Jesse Livermore, Gerald Loeb, Bernard Baruch and Richard Dennis are among the most successful traders and investors of all time. They implemented strategies, methods, techniques and principles that have been proven successful decade after decade. These legendary traders put as many factors as possible in their favor before taking a position in the market. They also used strict money management, cutting all their losses short.

If you want to become a successful trader, learn all you can from these legends. Read their books, study and learn how they trade. You will be surprised at what really works and what don't work in the marketplace. With diversification, you're only hedging against ignorance. It takes proper trading knowledge to achieve superior results.

By: Gary E Kerkow

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Gary E Kerkow is the founder of Tradingmarkets4u.com. This site provides information to help traders and investors become successful. Kerkow has over 20 years of trading experience including stocks, futures and options. He implements the strategies, methods, techniques, principles and psychology of the world's best traders and investors. This includes Jesse Livermore, William J O'Neil and others. Visit my website at www.tradingmarkets4u.com