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)

State of Nintendo

RSI, Stochastic, and MACD all indicate that the stock is over bought.
Momentum is heading down.

Yen is at 123.03


Wii Sales Still strong

An article by the Associated press about Wii's continued success is now making the rounds, even showing up in my local news paper. Confirmation that the Wii is still selling out is great but the article itself may actually be the more important. An article such as this one helps to maintain the hype that Nintendo will need going into the holidays.

http://www.mercurynews.com/ci_6262831?source=rss&nclick_check=1

WiiWare A GO!!!

Nintendo has finally announced that original games will be heading to Nintendo's virtual console. This is significant because it will allow both small and large companies to digitally distribute games, designed specifically for the Wii. This could become a large revenue stream for Nintendo in addition to making Wii even more attractive to consumers.

http://wii.ign.com/articles/799/799824p1.html

Reminder- E3 is July 11th. Nintendo is likely to clarify its plans for the future and reveal some surprises at the event. Shares of Nintendo should be purchased at least one week before E3.

Nintendo DS Lite
No significant launches in US within one month time period.

Wii
Mario Strikers released in US on 7/30

No such thing as a free lunch

I am not quite sure why I believed that banks were care free institutions, waiting to throw money at any person seeking a loan. I guess it was all the credit cards offers I receive in the mail. Or perhaps it was the easy in which one can obtain a student loan. In any case I have come to the realization that getting the loan I require might actually take some work!!!

The SBA provides all sorts of information for small businesses. They even offer classes (online tutorials) on how to start a small business. Knowledge is power, right?

Anyways, I am still going forward with my plan to incorporate Absolute Value Investing. But will it be a small business? I don't really know if it qualifies. The business would really just consist of me, investing in Nintendo, Terra, and other stocks with momentum.

From the bank's point of view, why should they invest in lxl investing? After all, couldn't they just invest their money in Nintendo or Terra? Sure. However, doing so does not guarantee gains. I am required to pay back any loan that I make, even if the stocks I invest in go bust. Of course this is exactly what I am going to have to convince the banks of. Maybe, I will be forced to start small to show the banks that lxl investing is profitable. Then after they feel more comfortable I will be able to obtain larger loans.

www.sba.gov - lots of info to check out.

Going Corporate

A few days ago I realized that I would not be able to reach my growth potential as quickly as I would like with my current bankroll. With that in mind I have considered obtaining loans.

Loans can provide me with a much larger bankroll and therefore greater profits. Since I believe that I can receive a 100% return on my investments, the interest that I would be required to pay on any loan would be offset by my gains. Of course if I incur a net loss, I would be in serious trouble. However, if you consider that most start-up companies use loans to finance their business it no longer seems absurd.

With that in mind I am considering incorporating myself. As a corporation I will have assess to government loans and may limit my liability. But I need to obtain as much information as I can before proceeding.

- Government Loans for small business
- SEC regulations relating to small businesses and purchasing stock with lent money
- Small business regulations
- The filing process necessary to incorporate myself vs creating a company

Absolute Value Investing Incorporated is the future.