dividend cut is announced.
One of the lessons of BP’s stock slide is the importance of portfolio diversity. Even financially strong companies, such as BP, are subject to what is known as event risk. If BP stock represented a small percentage of your total investments, it should not have had a significant impact on your overall return. Research suggests that most of the gains that you achieve from diversification come from investing in about 30 different securities provided that you hold relatively equal positions in each one. This diversification protects you from almost all firm specific risk. A diversified investor should not have suffered any significant losses from BP’s plight.
