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On the other hand, every serious investor knows that you need to spread your risks. This is just another example why that is crucial. Buying a stock always carr
by cpach 6y ago
On the other hand, every serious investor knows that you need to spread your risks. This is just another example why that is crucial. Buying a stock always carries a risk of losing money. You can’t bet it all on one horse.
- smabie 6y agoThe specific risk of a stock isn't of much concern for investors because they can easily eliminate this risk through diversification. This is also why specific risk is not compensated for by higher returns: only non-diversifiable risk such as market risk carries a risk premium. Of course this is a quantitative perspective that is not shared by high concentration discretionary investors like Buffet. Buffet needs to pick stocks with low idiosyncratic risk because he is not being paid a risk premium for it.