The key point of real estate is "location, location, location" and the
cardinal rule of investing is "diversify, diversify, diversify." All areas of investment do not follow the same economic cycle, so all are not bullish or bearish at the same time. With an investment portfolio, if you were to put all your eggs in one basket then it could fail. So, financial advisors recommend that people diversify their investment assets. This will reduce the risk of the whole portfolio's value decreasing. If one part of the investment lowers in value, then probably another part of it will increase in value. Together the different parts of the financial account should balance out and keep your assets safe.
Some Americans lost their savings when they invested lots of their money in a company, Enron's, stock. Many individuals did not think it was necessary to diversify because they thought Enron was a solid company with a stable price. However, it was a shock when people realized that Enron had been cooking the books. As a result, the company's stock value plunged and lots of investors lost their savings because they did not diversify.
Companies should also diversify their investments and their product line. In early 2004 a disease, Avian Flu, was present in certain parts of Asia. Since this disease was carried in chickens, many people stopped eating chicken. Kentucky Fried Chicken (KFC) in Vietnam had to quickly switch to offering fish in order to stay afloat. With an almost complete menu of chicken that is not diverse, KFC could have lost lots of revenue when this occurred in Asia.
If someone looks at another company, General Electric (GE), it shows that this blue-chip company is spread across many different areas -- financial services, media, and technology. This is safer for their business because if one part is weak then another one will probably be in a more profitable situation to balance out the overall business.
diversify = divide money into a variety of different investments
economic cycle = business pattern of growth, decline, recession, recovery
portfolio = collection of all of a person's investments
assets = items or property that have value
balance out = become equal overall
plunged = decreased a lot quickly
product line = group of products which a company sells to customers
blue-chip company = a well-established company that is valuable
cardinal rule = basic and important rule that must be followed
bullish/bearish = financially strong/weak
put all your eggs in one basket = invest all your money in one place (eg. stocks, real estate)
cooking the books = illegally making false financial records at a company
stay afloat = stay open, stay in business
