Did You Learn from the Past?

As Warren Buffet has said, the stock market can be a great teacher. While the Gulf Oil spill is certainly a terrible environmental disaster, it also provides another vivid reminder of the risks of concentrating your portfolio in a few stocks or allowing one stock to become a huge portion of your wealth.

This story has been repeated many times in the past. Many well known names, that were considered safe, incur huge declines, sometimes in a day or two or within months, without any prior warning and certainly not predicted or knowable in advance.

Think of:

Merck and the Vioxx legal issues (dropped almost 50% in very short time period)

British Petroleum (down almost 50% since the oil spill occurred)

General Electric lost 88% from its peak in 2008 to early 2009

United Health Group, which lost 40% during 2006 due to corporate options issues

The key is to structure your portfolio so it can withstand an event such as the BP oil spill. By owning a broadly diversified global portfolio, your lifestyle will not be dramatically affected by the events (or failure) of one company or one industry.

Isn’t that the goal anyway? To reach a level of financial comfort, by saving and investing, so that you can enjoy your life, regardless of the success or failure of one or a few companies in your portfolio. For our clients, that would be our goal!

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