Do you seem to be losing too much money in your stock account?  When the market drops here and there does your account seem to drop too much and too often.

Well, there are ways to protect against this, or at least minimize the losses.  And that’s important to do.

Because the legendary investor Warren Buffett has two great rules for investing.  They are …

Rule 1:  Don’t lose the money.

Rule 2:  See rule number 1.

This is a huge key to successful investing.  So protecting your stock investments is probably the most important thing you can learn.  This is how you make money and keep from having big losses.

Now there are two main things you need to do to protect your portfolio.  And both are simple to understand.  So if you just do these two things, you will be way ahead of the average investor.

We’ll focus on one technique right now.  And that is to not put all of your eggs in one basket.  You’ve heard that phrase before, right?  Meaning that if you drop the basket, all of your eggs break.

This is also known as diversification, and it means you should own a number of different stocks, and never invest all of your money in one single stock.  If you do, you are taking unnecessary risk, and could have a big loss.

Why?  Because none of us can predict the future.  And you never know if there will be a headline tomorrow that says something really bad just happened at that one company that you are invested in.

Like ENRON, for example.  There were people that had their entire retirement investment in this one company’s stock.  Then one day they woke up and there was a bad headline in the news about ENRON.  It said the management had been cooking the books and reporting profits that were completely made up.

The stock value dropped, plummeted actually, and lost half of its value in just one week.  And by the end of the scandal, and bankruptcy, the stock had dropped from $90.00 to $.61 a share.  That’s right, sixty-one cents.  It was a total wipeout.

So whenever you are tempted to put all your eggs in one basket, you might take a minute to read about the Enron scandal.  It’s a sobering and cautionary tale for all investors.  You can read about it here at https://en.wikipedia.org/wiki/Enron_scandal.

So be sure to invest in more than one stock.

How many stocks should you be invested in?  Opinions vary on this.  Most range from five to twenty-five different stocks.  And I think five is risky, because you still have 20% of your investments concentrated in a single stock.

Of course, you’ll probably have just a few stocks when you first start to build your portfolio.  So in the beginning, you will not be as diversified as you should be.  But work toward diversifying into more different stocks as soon as you can.  You should really shoot for having no more than 4-5% of your portfolio in any one stock.  So practically speaking, I tend to stay invested in 20 – 25 stocks.  That keeps my exposure to any single stock to no more than 4 – 5%.

Similarly, never invest in all of the same kind of stocks.  For example, it would not be smart to invest in J. C. Penney’s, Macys and Target.  Sure, you are invested in more than one stock, but they are all retail department stores.

So what happens to your account when there is a recession and consumers stop shopping?  All of your retail department stores stocks go down — all at once.

So invest in different kinds of stocks to stay diversified as well.  Which is really not hard to do if you use a steady stream of new stock recommendation ideas.  And there are many of them out there, both free and paid for newsletters and advice.

That stream of investment ideas will help you be sure to stay diversified.  And this is a sign of a good stock investor.  It’s a good way to protect your investments.  And it puts you ahead of the average investor.

One final note.  And that is that  on Jim Cramer’s Mad Money show on CNBC, he has an excellent segment called Am I Diversified?  Investors call in and tell him five of their top stocks.  Then he quickly evaluates them and tells them if they are diversified.  So you might want to watch this part of his show sometime – it’s very instructive – and Jim keeps it entertaining.

So get diversified.  And you’ll be on your way to turning your stock investing results around.

To your health and prosperity – John

P.S. To learn other ways to turn your portfolio around, or just get started, you might want to check out my latest book entitled Stock Investing For Beginners.  You can browse through it for free right here.