No single stock is immune to bad news. No sector rises forever. No investor is right every time. Diversification is the pragmatic response to that reality: it lowers risk without proportionally lowering expected return.
Three axes of diversification
Three dimensions shape a balanced portfolio: across securities (at least 6-8 lines), across sectors (banks, telecoms, energy, real estate, consumer goods), and across asset classes (equities, bonds, money market). Each axis cuts a specific risk.
Why a 6-8 line minimum
Mathematically, idiosyncratic risk (specific to one company) drops sharply between one and four lines, then more slowly between five and ten. Beyond that, the marginal benefit shrinks. For a Moroccan retail investor, six to eight well-chosen stocks deliver an excellent simplicity-to-diversification ratio.
The fake-diversification trap
Owning ATW, BCP, and CIH isn't really diversifying — all three are Moroccan banks exposed to the same factors (rates, GDP growth, credit quality). True diversification mixes weakly correlated sectors: a bank + a telecom operator + a cement player + an insurer react differently to a macro shock.
How much foreign equity?
For a Moroccan retail investor, direct access to foreign markets from a local securities account is limited. OPCVMs are the most practical international vehicle. Allocating 10-20 % of the equity pocket abroad improves diversification without operational complexity.
When to rebalance
Quarterly or annual rebalancing is enough for most retail investors. The simple rule: if any line drifts more than 5-7 points from its target (e.g. target 10 %, reality 17 %), trade back toward the target. That forces you to sell what has run up and add to what has lagged — the exact opposite of the emotional reflex.
In practice
A simple spreadsheet, updated four times a year, is enough to track allocation. No fancy software required. Discipline matters more than tools.