Diversification done right

Many young investors oppose diversifying their portfolio because they believe that doing so will yield smaller ROI. The anti-diversifiers believe that putting all of your money in a single winner will obviously yield greater ROI then dividing your money between a winner and a loser. Any stellar gains made by the winner will be watered down by the loser.

Young investors believe this because it's true! Diversifying your stocks by investing in stocks which have wildly varied performance levels will result in watered down returns! However, this is exactly what many investors do when they diversify their portfolios. But it doesn't have to be this way.

Diversification can be used as a tool for capturing greater gains as well as reducing your risk. How?
By diversifying your portfolio with only similar performing stocks, that are otherwise unrelated. You do this by searching for stocks with growth rates that match one another. Here is an example.

TNH has doubled in the past 3 months and is projected to continue this momentum.
FTK has also doubled in the past 3 months and is also projected to continue rising.

If all of your money was put into TNH or FTK, you would double in 3 months. But if you put half your money in TNH and half in FTK, you will still double your investment in 3 months!! If a stock is not meeting your expectations, drop the stock and find another which will.

It isn't always possible to predict the future. Diversifying in this manner can protect you against incurring the large losses that could result if a stock unexpectedly reverses its trend. Diversification done right can reduce your risk without decreasing your returns.

Predicting the Future is Hard!!!

I am currently facing a dilemma. Every indicator I have studied indicates that Nintendo (NTDOY) should have a moderate correction in the near term; as soon as tomorrow. However, with E3 in less than 4 trading days I worry that a correction will never come. And so my problem is this.

Buying Nintendo stock before a correction will mean that I have payed more for the stock then I should have. This would mean fewer shares, which would hurt my profits in the long-run. But if I wait for a correction and it doesn't occur it would also hurt my profits in the long run.

Conclusion
I will wait for a correction. Once the indicators signal a weak buy signal I will purchase.

Stock Purchase (TNH)

Price - 134.05
Time - 3:50

No longer over bought (according to Stochastic for month-year) with fast Stochastic now moving upward, I felt that it was time to purchase. I waited to purchase TNH until the end of the day to make sure that the stock had momentum. The stock closed at 134.64, up 7.57 for the day, hitting its 52 week high of 135.44 at 3:26.

The position is to be held long-term with fluctuations of 10% (no matter how painful) to be tolerated. Until the stock shows signs of weakening momentum, I will not sell the stock.

State of Terra Nitrogen

Stochastics is around 60% (no longer overbought) with downward slope.
RSI is just below overbought with a score of 67; slope is upward.
Momentum is downward sloping

Natural Gas Price= 6.685 (-0.088)

Analyst Upgrade

Sabrient upgrades TNH to BUY from HOLD.
Jaywalk score is now 2.00, up from 2.13 (2 is buy and 3 is hold)