Putting our hard earned money in the stock market is a risky business. We may have put in our best research effort to ensure that all the financial, valuation and management factors are tip-top but there will be some hidden or external factors which investors do not know. We all do not want to see our portfolio lose money. It's risky to invest in stock market. We cannot eliminate risk but we can reduce our risk. So what do we do? We buy more individual stocks :) Study has shown that as we diverisified by buying into different stocks, our portfolio risk reduces. So when a particular sector or single stock is not doing well, it will not have a big impact on your portfolio as a whole. However, when there's a systematic risk of a global crisis eg the Great Financial Crisis in 2008, every stocks in the stock market will fall. That will affect your portfolio too.
The following will be what I will be doing.
Keep to the 5% rule. Try not to have more than 5% of the individual stocks in your portfolio. So that any bad things happening to your single stock is only 5% of your overall portfolio. It will not caused a dent in your portfolio. In order to get the magic 5% figure, you need to invest at least 20 different stocks so that they will make up 100% of your portfolio. Basically, I will be trying to build my own ETF with 30 to 40 stocks for a start.
Currently we have oil price dropping from US$100+ to below US$50, this has caused O&M related stocks such as Keppel Corp, Sembcorp, CH Offshore, etc tumbling down as much as 27%. Do be careful not to keep picking up these stocks from the same sector and over exposed yourself to the O&M sector. Keep to the 20% for each sector.