1. A San Francisco Chronicle columnist offered the suggestion that, rather than spreading your investment dollars across many stocks (thus diluting the effect of the performance of any one stock), you’d be better off putting all your money in one really good stock. This advice is dead wrong in at least two ways. Explain the columnist’s mistakes.
2. Combine two bio-tech stocks into a portfolio and the risk of that portfolio is not much different than the risks of the stocks themselves. Combine a breakfast cereal stock with an automotive stock and the portfolio risk is much less than the risks of the stocks themselves. Discuss the statistical measure that explains this phenomenon.