Depending on who the next person is, it’s probably true to say that I like diversification as much as the next person. Despite this, one investment currently makes up 12.5% of my Stocks and Shares ISA.
The stock is Games Workshop (LSE:GAW). And despite being an unusually large part of my portfolio, I’ve no intention of selling it any time soon. I think other investors should consider it too.
Diversification
There are a couple of important points worth making about diversification – starting with the fact it’s important and I do want a diversified investment portfolio. But it’s not the only thing that matters.
I tend to think the most important is focusing on the best opportunities at any given time. But that changes as investors become more or less positive about different stocks from month to month.
From this starting point, I prefer to let the diversification take care of itself. Despite a big stake in Games Workshop, I own stocks in various geographies and industries and I expect this to continue.
I think it’s also important to note that some of the obvious ways of diversifying – such as index funds – don’t necessarily offer as much protection from specific risks. The S&P 500‘s a good example.
The index contains literally hundreds of companies. But they’re all US-based and the index as a whole is heavily skewed towards the technology sector and – by definition – large-cap companies.
By contrast, I have a much more even balance between large and small companies in both the US and the UK. And I’ve managed to achieve this by focusing on specific opportunities at different times.
Why Games Workshop?
I’ve owned shares in Games Workshop for some time, but I didn’t necessarily intend it to become such a big part of my portfolio. It just happens to have been one of my more successful investments.
It’s not a complete accident that the stock’s done well. The company’s strong intellectual property makes it the only supplier in its market and it has a loyal and driven customer base.
Games Workshop does constantly need to keep launching new updates and editions. And there’s always a danger the next one might not be as successful as the last, causing profits to fall.
The risk’s real, but I think management has more than earned the benefit of any doubt. Furthermore, I’ve been impressed with the way the firm has resisted the temptation to overplay its hand.
In 2022, a release of certain Magic: the Gathering cards from Hasbro enraged customers who saw it as an opportunistic cash grab. So far, Games Workshop has done well to avoid this. I see this as a sign that the FTSE 100 company understands its customers. And I’m optimistic this should allow it to keep doing well, which would be a good thing for my investment.
Portfolio building
Despite the stock being 12.5% of my ISA, I’m not planning on selling my Games Workshop shares. Instead, I’m planning on balancing my portfolio by buying other stocks.
That’s one of the benefits of regular investing – I don’t have to sell a stock just because it’s been doing well. Instead, I can reduce the overall weight in my portfolio by looking for other great opportunities.
