Stock Market Investing - Diversification vs Diworsification

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mipasia

by mipasia

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Several businesses want to have multiple streams of income while their core business is doing well. This is the reason why many companies diversify their cash with a wide range of diversification strategy. This is so that their porftfolio's risk is widely spread and is safe to generate even more income even in bad times.

This applies especially to new CEOs. They tend to buy over new companies, but realize this - that that out of 100 companies that diversify, only a few will be successful.

Diworsification is a term coined by famous value investor Peter Lynch, where instead of the company profiting from their new subsidiaries, they suffer losses over long term because the culture of new companies tend merge. This causes a lot of problems for the new companies.

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