First, read this Bloomberg article: How Singapore's Not-Really-Rich Have Been Burned By Swiber Bonds I know, you not interested as you don't have $250K to buy into bonds in a single pop. Wait, there's a hidden message you are missing. That's risk management. What if the accredited investor has 10 million dollars in liquidity (do not count property assets)? Buying an unrated bond and losing 100% of that investment of $250K is not disruptive to his/her lifestyle right? Some of you may have participated in peer-to-peer lending. It's the same "greed" as our accredited investor - you hungry for yield mah! Can tell who is savvier between the two peer-to-peer lenders below?

1. a) Commits $5K into one single company yielding 10%.

1. b) Commits the same $5K but splits them into equal $500 into 10 separate companies yielding the same 10% at portfolio level.

If you have answered b), may I ask you if 1 or 2 companies default, is it still savvy to lend money to unsecured borrowers at 10% interest? Now you know why credit card companies charge 25% interest per annum. Wink. I think you getting it now... If big wallet invests 50K into Swiber stock and that position is 2% of his total portfolio, he'll probably shrug it off as a learning opportunity if Swiber goes belly up. But if you thin wallet invests the same 50K into Swiber because you "monkey see, monkey do"; and that position is 50% of your portfolio, well, you can't complain to anyone because you know the retort back, "He ask you to jump into the river, would you?" LL. Yup, that's why they say diversification is the hedge against ignorance, stupidity, and surprises! OK, some bonus questions before you go to test whether your knowledge is superficial or at conviction level. You know what they say, a little knowledge can do more harm than ignorance... Here we go: Is owning 30 stocks in a portfolio diversified enough? Especially if 40-50% of that portfolio is geared towards financials? And you have no clue what is Narrow Country Focus risk? Ahem.

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Singapore Man of Leisure (welcome to my blog; just google it!)