He eyed his cereal bowl cautiously as I poured it. His look said it all, "You lied to me. You told me this was a new kind of cereal. All you did was mix a whole bunch together. I'll never trust you again."

Let's see if I can do a better job on diversifying our portfolios.

My gurus, the Motley Fools and their [book], jump-start my journey. To whit: "At various times along the way, some of your individual holdings will heat up and swell into overlarge positions in your portfolio."

My first thought, as regards my own portfolio, to the above mentioned, "heat up and swell" would be, "Yahoo! I've hit the motherlode!"

And before I even begin celebrating, the Motley Fools have dampened my spirits.

Their warning: if one of your stocks is doing VERY, VERY well, now is not the time to sit back and relax. Now is the time to take action!

How?

By moving some of the money from your moneymaker stock into your other companies. And this really goes against common sense, don't you think?

If your stock is a winner and a moneymaker shouldn't you just leave it alone to continue to make money?

Nope…"red flag", so say The Fools.

I've included a partial table and their advice on how much of a percentage should be allowed for each of our holdings. Names of companies have been changed to protect the innocent and to keep me out of hot water.

Date Purchased Shares Security Purchase Price Current Price Current Value 8/5/97 305 ABCD $8.13 $40.75 $12,248.75 8/5/96 85 EFGH $28.00 $48.88 $4,154.80 8/11/96 45 IJKL $57.88 $84.88 $3,819.60 5/17/96 40 MNOP $60.50 $94.88 $3,795.20

And that is just a partial listing of their example, but I think it's enough to understand what we need to know. Their entire example is based on a total portfolio value of $20,000.00. They encourage us to "never invest more that 15 percent, or $3,000.00 of our original investment in any one position."

Although this statement is in line with conventional wisdom please review the article "Time to Rebalance" by Charles B. Carlson, who believes that there are other factors to consider before following conventional wisdom.

They indicate that their initial investment dollars did not exceed the 15% allotment, but in their case, 2 years down the road, they indicated that their "ABCD" stock exploded. Rather than celebrate and continue to watch it explode, they encourage caution.

According to their example, "ABCD" has swelled to "40 percent of the total value of this account." Time to lighten the load and do some shifting.

Why?

If anything drastic happens to "ABCD" stock for any number of unknown reasons, this portfolio would loose $12,248.75 of the original $20,000.00 total. Predicting the worse, that could be a big ouch!

So the Fools say better safe than sorry and move your money around evenly to prevent any possible large losses.

Their example of an original investment that began as $20,000.00 and has grown now, as per their example, to a total of $31,890.95 is really very impressive.

Next time let's look at my more realistic, beginner's style $500.00 portfolio. I do like the Motley Fools table that they've provided for our use. I'll list my investments, similar to how they've done it, and let's see if I've broken the 15 percent rule in any one of my stocks.

And we're still struggling with diversification Moms, but not the cereal box kind. I most certainly flunked the 15% rule on that one. I did the opposite of what the Fools have encouraged. I put ALL his cereal in just 5 boxes.

Don't tell the Fools.

Thank you for joining me,

Joyce