Spread Your Bets

If you buy what you know, you may hold too much stock in the industry that employs you

Peter Lynch became a fabled money manager and best-selling author mainly on the back of a simple investing principle: Buy what you know. But how can the average investor square that strategy with the equally compelling mantra: Diversify for safety? It's one thing for a pro like Lynch to gain enough knowledge about enough stocks to own only those that he understands--and still be diversified. He's got the time and resources. Most individuals, though, are doomed to a far narrower scope. Their best edge may always reside in the company or industry where they work.

And there lies the rub. Odds...

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