Robert Rex's  Instablog

MORE BASKETS NEEDED

Putting all your eggs in one basket is a bad idea according to one age old idiom, since to do so means risking everything should the basket be dropped.

When it comes to investing the family nest egg this idiom is a good one to keep in mind, since diversification is the only way to limit risk. Diversification means that you should spread your investments among a number of stocks and sectors so that if something goes wrong it one "basket", you be protected by having a part of your investment in other "baskets".

In our practice, over-concentration is one of the more common abuses we see our clients subjected to.

Examples of over-concentration are:

• Putting all or a large percentage of your portfolio in a single stock, or
• Putting all or a large percentage of your portfolio in a single sector of the market (ie; energy sector, technology sector , etc.)

For those who experienced the 2000 technology market crash, no explanation is needed as to why it would have been better to have owned a diversified portfolio rather than one made up primarily of technology stocks.

If that one company or sector you are heavily invested in collapses, you could experience damages that would permanently affect your ability to retire or if already retired, to remain so. Likewise if you are too heavily weighted in a single sector of the market and that sector is hit, you will wish you had been diversified.

Most people hire a stockbroker or financial adviser to gain from his or her wisdom and the supervisory oversight the employing firm is required to conduct over the way the broker handles your accounts. In return you pay commissions or a fee for these services and have the right to expect that your account (which often represents your life savings) is handled in a manner consistent with your desires and risk tolerance.

Here is a list of some of the worst performing stocks for 2012. If you had a large position in any of them, it is likely that you have experienced meaningful losses.

NI Holdings NIHD

Arkansas Best Corp. ABFS

Hewlett Packard HPQ

Basic Energy Services BAS

Cliffs Natural Resources CLF

Allegheny Technologies ATI

Dell Inc. DELL

Exelon Corp. EXC

Northern Oil & Gas NOG

Windstream Corp. WIN

Groupon, Inc. GRPN

If you have experienced losses as a result of being heavily invested in a single stock or sector, you may be able to recover your losses through FINRA arbitration. Call us if you have questions about stock market losses.

Nationwide representation.

Free consultation.

Rex Securities Law

561 391 1900

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

According to Forbes, these stocks were the worst performing during 2012:

Stock Performance
Navistar International NAV -45%
Best Buy BBY -47%
JC Penney JCP -48%
AK Steel Holding AKS -50%
Cliffs Nat Resources CLF -50%
Advanced Micro Devices AMD -56%
Alpha Nat Resources ANR -59%
Supervalu SVU -66%
Eastman Kodak EKDKQ -68%
NII Holdings HII -75%

This list published by Forbes in early December 2012, failed to include Groupon, Inc. which, at $5.30, is down 80% since the beginning of 2012.

If you were encouraged by your broker to maintain concentrated positions of a single stock that resulted in damages you may have valuable legal rights. See this link for a discussion of over-concentrated positions.

If you have questions about losses in your brokerage account, please do not hesitate to contact us.

Nationwide representation.
Free consultation.

Rex Securities Law

561 391 1900

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The Financial Industry Regulatory Authority (FINRA) recently assessed fines of $770,000 to the following five firms for failing to deliver prospectuses to purchasers of securities:

• LPL Financial LLC - $400,000
• State Farm VP Management Corp. -$155,000
• Deutsche Bank Securities Inc. - $125,000
• Scottrade Inc. - $50,000
• T. Rowe Price Services, Inc. -$40,000

FINRA's review covered from January 2009 through June 2011. In the settlement agreements, FINRA made the following observations:

LPL Financial relied on brokers to deliver the prospectuses but had no procedure in place to determine if they were delivered in a timely manner. LPL was required to deliver over 3 million of these disclosure documents during the review period.

State Farm, who should have delivered over 150,000 during the review period was found to have inadequate supervisory procedures in place.

Scottrade, Deutsche Bank Securities and T. Rowe Price were found to have failed to make delivery of the documents in fewer instances, with inadequate procedures in place.

A prospectus is a disclosure document that describes a security to potential buyers. Sometimes referred to as containing "the hundred and one reasons not to invest" in the particular security, it contains detailed information about the the company's business and competition and more importantly contains downside risks generally not mentioned by the selling broker.

For the obvious reason, the law generally requires that the document be made available to the purchaser prior to making the purchase.

If you have questions about losses in your brokerage account, please contact us for a no charge consultation. We have been helping investors recover stock market losses due to fraud and negligence for 25 years.

Nationwide representation.

Rex Securities Law

561 391 1900

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.