Question

What matters most? The Portfolio, or the asset itself? Can I choose whether to consider a holding as a portfolio or as a stand-alone asset?

Answer 1

Assets are units of the portfolio and bear risk as well as have returns associated with them.

Portfolio on the other hand is a collection of different types of stocks and it is diversified as risk is shared among the different types of stocks.It also average out the return among different stocks.

Portfolio matters most in investing. It is always more about the assets allocation than selection of an individual stock. Portfolio magnifies the probability of earning higher returns and minimizes the risk.

It is always advocated in the investing world to have a well diversified portfolio because that neutralizes the firm specific risks associated with the different types of stocks. The higher the number of stocks, the more the portfolio is secured against unsystematic risks because the bad returns from one bad stock is negated with better returns with other to give a net output of positive return.

One can choose to invest in stand alone asset only if he is highly confident of his analysis and assured of making returns because the firm specific risk is completely dependent on one stock and that makes it highly risky.

It is always advisable to invest through a portfolio rather than a stand alone asset because that will help in diversification and mitigation of risk. It can help in providing investors with a sense of security.