Stock Diversification for Dummies | Elliott Wave International

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Stock Diversification for Dummies

By Susan C. Walker
Wed, 12 Oct 2011 10:00:00 ET

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If EWI's European Financial Forecast editor were to publish a book, he would probably give it the same title that he gave to one of his charts in the new October issue: "Stock Diversification for Dummies."

It's easy to see that the title cuts both ways -- stock diversification is either a good thing and everyone should know how to do it, or it's a bad thing and only dummies would do it.

The chart, which breaks out the FTSE 350 index into its 10 components, tells you at a glance exactly which side of the argument is most persuasive.

You can see the chart, which covers two-thirds of a page, when you subscribe to this first-class forecasting service. Meanwhile, here's a taste of Editor Brian Whitmer's accompanying analysis:

Notice one more contortion of conventional logic shown on the chart. Time and again, we hear that “real assets” are the best friend of defensive investors in a down market. Yet, commodities plunged right along with stocks in September. So did the mining and industrial metals complexes, whose shares are down 40% and 53%, respectively. Observe that the oil and gas producers dropped, too. The dismal performance of these critical sectors supports EWI’s long-standing thesis that, as the deflationary storm intensifies, fewer and fewer places will provide shelter. [Excerpted from The European Financial Forecast, October 7, 2011]

Since Europe is ahead of the United States in dealing with economic woes and sovereign debt problems, that makes Whitmer's European analysis spot-on useful for investors in U.S. markets. You can be the first to know what's coming in Europe AND the U.S. by reading EWI's European Financial Forecast Service.

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Tags: diversification, eurozone, europe, eurozone, FTSE

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