Steady growth tends to be associated with good quality. There are exceptions, but lack of a growth trend may suggest uncertain quality. Quality can change. Assumption of a big debt load resulting in a highly leveraged balance sheet and sharply reduced interest coverage will reduce quality. Part of portfolio management is being aware of such shifts.
Diversification is fundamental to reducing risk.
A portfolio in which eight to ten different industries are represented is adequately diversified provided each industry carries roughly similar market value weighting. Keep these guidelines in mind when buying stocks as new additions or as more of an existing issue. Growth rates of sales, earnings per share, pre-tax profits and other fundamentals can be determined using the front of the NAIC Stock Selection Guide. Portfolio management must determine whether growth is continuing if the investor's original expectations are to be realized. This can be done in two ways.