Follow The Rules

1. One-Stock Investing

Everyone's heard the one about the stock inherited from grandma that began as a few measly shares and, through dividend reinvestment (and divine neglect), is now worth hundreds of thousands of dollars. The stock shares are like the Energizer bunny...they just keep going and going, and presumably they always will. Or will they?

Whether you're holding shares of a tobacco company, a soft-drink purveyor or a software developer, if this is the dominant position in your portfolio, consider selling a few of those shares and diversifying. (Before you do, however, be sure to check with your tax advisor.)

It's a strange but common phenomenon that the person doing the selling usually values an item at a higher price than the one doing the buying. If you're holding shares of a stock because you can't bear to part with them, consider what might happen if their value were cut in half. If such a situation wouldn't be devastating to your finances, hold on, but if just the idea of it is making you sick, lighten up your position.

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This article was originally published in the January 2000 print edition of Entrepreneur with the headline: Follow The Rules.

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