By now you may be aware of the new phenomenon sweeping the nation—Pokémon GO. Its catchphrase “Gotta Catch ‘Em All” refers to the player’s objective of catching as many of the virtual critters as possible. We don’t completely understand the craze, but at least it’s getting kids outside! The game is so popular that within days of its release, it had already exceeded Twitter and Facebook in the number of daily users.
Nintendo, which owns a 32 percent stake in Pokémon, saw a big jump in its stock price—gaining over 100 percent just two weeks after launching the app on July 5. Dramatic increases like this often leave investors wishing they would have had the foresight to get in before it happened. But it’s also a good reminder of the random nature of stock market returns. You’ll never be able to consistently predict when a stock will rise (or fall), nor by how much.
Diversification allows us to “catch ‘em all”—so that you participate when companies like Nintendo soar in price but you also limit losses if the stock of a particular company falls considerably. (Coincidentally, a couple of the international funds we invest in here have direct investments in Nintendo.) Yes, the opportunity for large gains is limited, but you also remove some of the unnecessary risk in your portfolio. So you can spend less time worrying and more time catching Pokémon (go ahead, we won’t judge you).