Sunday, February 5, 2012
Why should we diversify our holdings? Because if all of your money is in one place, you could lose it overnight. Remember Enron? Many of the people who worked there had their life savings invested in Enron stock. Imagine saving $200,000.00 after 30 years of devotedly depositing into your 401k at Enron and then poof-all the money is gone, zero, nada, nothing. Another good example of this is what happened to the CPI Corporation (CPY) on Friday. After the market closed, they announced that they had gotten a de-lising notification from NASDAQ. The stock was down more than 20% in a matter of minutes, not much you can do as a stock holder in that situation, you couldn't even sell it because the market was already closed. The only protection you have is to diversify and not have all your money in one place or holding. Please don't do this unless you are fully aware of what the risk is.
Another lesson, to be learned from this example is; sometimes it just better to sell and move on. This would be that kind of situation. Many times when a company gets de-listed; institutions will sell on the news and ask questions later, driving the price way down. Now this doesn't happen all the time, only most of the time. The likelihood is that the price will continue to go down and stay down for a while. Always better to be safe than sorry in the market. Sell CPY on Monday, that is what I am going to do.
Let me just add that something smelled fishy last week when the stock had a big run up for no reason, you think other shareholders knew something that we didn't?