Diversify across sectors for stable returns

In 2010, real estate companies fell 26% and in subsequent year, they fell another 52%

To get stable returns, it’s best that investors diversify across sectors, rather than taking concentrated bets. Keeping a maximum investment limit, say 20 per cent in each sector, would help them diversify. It’s common for investors to chase stocks and sectors that are doing well. If lucky, it may work in their favour. In 2006, if you had invested in the year’s best performing sector, capital goods, your investments would have doubled within a year. But, if you look at the best performing sectors in subsequent years and their performance a year after, you will realise it’s equally easy to lose money. Similarly, only because a sector is at the bottom does not mean it’s a good contrarian bet. In 2010, real estate companies fell 26 per cent. In the subsequent year, they fell another 52 per cent.