FX.co ★ Diversification Rules: How to build a reliable share portfolio

Rule 1. Companies should not depend on one indicator

You can have in your portfolio a stock retailer, an air carrier, a gas producing company, and a steel seller. At first glance, these are different businesses, but they can depend on one thing: the market, the exchange rate, the value of products or other factors.

Market. Companies that sell most of the goods or services in a particular market (Russia, the US, Europe and Asia) are directly dependent on this market. That is, if products are sold less, then both revenue and profit will decrease.

For example, Aeroflot and Magnit, despite their different directions, want to take money from one particular Russian. And if a person will have less money, then the income of companies, and accordingly yours (as the owner of shares), will fall. If you buy shares of companies that depend only on one market, you will buy one common macroeconomic risk.

Exchange rate. Another frequent form of dependence, when the company sells most of the goods or services only for dollars or euro, or when the main costs of the business depend on it.

For example, M.Video buys equipment abroad for dollars and sells it for rubles in Russia. If the dollar goes up, then M.Video will raise prices for goods, and this is likely to have a negative impact on revenue. Another example: the company Cherkizovo works primarily in the domestic market and sells its products for rubles. If the dollar grows, then the company will only benefit. As imported sausages will rise in price, and sausages by Cherkizovo - no.

Cost of production. Companies that produce one type of product depend on the price of this product. As a rule, this applies to companies that extract oil, gold, diamonds, coal, or metals. For example, Tatneft gets most of the proceeds from the sale of oil. If the price of oil rises, the company's revenue will grow; if it falls, the revenue will decrease.

Rule 2. Companies must engage in different businesses

The main idea of diversification is that the shares of companies that will be in your portfolio should not depend on each other. It's good, if the business does not depend on one indicator, but it's even better if the companies are engaged in different businesses. And even if companies work in the same sector, this does not mean that they receive money for the same thing. A striking example of this are companies RusHydro, Rosseti, and Mosenergosbyt, issuers from the energy sector.

RusHydro produces energy in hydroelectric power plants and then sells it inside the country. Rosseti is engaged in the transportation of electricity. And if companies like RusHydro want to use this service, they will have to pay for it. Rosseti delivers energy to marketing companies, including Mosenergosbyt. The basis of the business of marketing companies is to sell energy to the end user, that is, ordinary people and organizations. Despite the fact that the companies belong to the same sector, the business of each of them is arranged in different ways.

Rule 3. There should be shares with different types of risk in the portfolio

Using diversification you do not need to strive to destroy risks at all costs, you need to be aware of these risks. To collect a portfolio of non-interconnected shares, you need to understand how the business works, on what factors it depends. To do this, study the sources of revenue. Then assess the company's dependence on certain factors (internal or external demand, exchange rates, etc.). If such a dependency exists, decide whether it suits you or not. The main thing is to choose risks consciously. Another way to reduce the dependency is to buy shares with the opposite risk.

But do not forget about the most important thing, profitability. When you try to get rid of risk, do not forget that the task of the portfolio is not only not to lose money but to earn money. And if you want to get profit, you still have to take some kind of risk.