Question

Do you think that the following statement is true or false? Buying a single company stock...

  1. Do you think that the following statement is true or false? Buying a single company stock usually provides a safer return than a diversified stock portfolio.

True.

False.

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Homework Answers

Answer #1

This statement is False.
Buying a single company stock is more dangerous as compared to buying the shares in a diversified portfolio.
Explanation- If you invest whole amount in a single company there is a lots of risk involved like

  1. Fundamental of the company is stong or not
  2. Corporate governance of the company
  3. Sector Specific risk
  4. Unsystematic risk -workers on stike

If you do a diversified Portfolio there is a benefit of Reducing the unsystematic risk. If you invest in multiple companies, if one company may default the other company will compensate the loss or reduce the loss, but you go for a single company if they having in a trouble position you will have to suffer a huge losses.

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

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