Regulatory Announcement Can Break Your Portfolio
Today IEX share has gone down by over 27%, and it is because of a regulatory announcement. So what happens is that Central Electricity Regulatory Commission has announced thar their will be phased inplementation of giving energy information. Now this is what IEX does and it has the maximum market share of that itself.
PC: Google.com
So with this regulatory announcement, the IEX share has gone down because there will be dip in income because of this regulatory announcement. That's actually the problem we have to face when we are building the portfolio. This type of regulation can destroy our portfolio. Think about someone who has a lot of shares of IEX. For them 28% is wiped our in a day.
That's where the diversification comes into picture. We should not have 5 to 10% of our portfolio in any one stock because this type of things can happen with any stock. And if it happens with one of the stock out of 10 then it's ok because your portfolio will not feel the pinch. Similarly if you are investing in the index, then no matter what shares go down or up you will be in safer side as the index will give good returns in the long run.
Now coming to the IEX, I think the shares will go downfurther because if someone is owning 70% of market share on something which goes to other companies then you will lose substantial amount of revenue and thus your shareholders will lose faith on the earning and it will make the stock gp down further.
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