Although arguably, an imperfect translation -attributed to Peter Motteux- from the Spanish language in the early 1700s of Don Quixote states that Sancho said: “It is the part of a wise man not to venture all his eggs in one basket” (Miguel de Cervantes). This sentence has become one of the most used in explaining portfolio diversification. Clearly, if you drop or lose the basket, you will lose all the eggs (or almost all the eggs). However, building a well-diversified portfolio is not a trivial task. What does an investor need to consider to build a well-diversified portfolio?

Although arguably, an imperfect translation -attributed to Peter Motteux- from the Spanish language in the early 1700s of Don Quixote states that Sancho said: “It is the part of a wise man not to venture all his eggs in one basket” (Miguel de Cervantes). This sentence has become one of the most used in explaining portfolio diversification. Clearly, if you drop or lose the basket, you will lose all the eggs (or almost all the eggs). However, building a well-diversified portfolio is not a trivial task. What does an investor need to consider to build a well-diversified portfolio?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 6MC

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