Investing Lessons From the Race Track

As an individual investor, it is sometimes hard to pick the best stock in a sector. Let's say, for example, you want to play the biotech sector. Should you invest in Amgen(AMGN)? Gilead(GILD)? Genzyme(GENZ)? Or you could put together a portfolio of representative stocks or even buy an exchange-traded fund such as the Biotech HLDRs(BBH).

Buying one stock in a sector, you take on stock-specific risk. Should you pick the wrong stock, in an index that is trading bullishly, then you will have guessed right as to the sector but will still lose money because of the individual stock pick. Nor do you want to buy stocks exclusively in one sector. If your thesis is wrong about the biotech sector, for example, then you could find yourself taking a beating. That is why investors diversify across sectors and asset classes.

So the final lesson from the race track: diversify. Because, as with all investing strategies, applying lessons from the race track to your stock-picking endeavors requires discipline and risk management.

If you plan on being at the Saratoga race track, drop me an email and perhaps you can bet alongside the professor.

-- Written by Scott Rothbort in Lake George, N.Y.

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