The stock market has been experiencing a tremendous amount of turbulence over the past three weeks. We have seen wide swings in the Dow Jones Industrial Average ($INDU) of hundreds of points up, and then down, and back up and back down. Today,the Dow had its second-worst loss of the year. If you are losing sleep or getting a queasy stomach over any of this then your portfolio is not right for you. You have made big mistakes in allocating your capital and you need to make a change.

Anybody that has been investing for any period of time has been told to be diversified, or even more simply -- do not put all your eggs in one basket. After each market swing Wall Street prognosticators, be they analysts, brokers, media talking heads or us at BloggingStocks attempts to rationally explain what is happening in the market. Some times the explanations make sense, and sometimes they do not. But, it is important to remember that even when the explanation is rational, plausible, and backed up with a few facts IT CAN BE WRONG!

There are many aspects of the stock market that replicate gambling. The most important one of them all is this: Do not play with money you cannot afford to lose! You should consider diversity of risk and limiting risk to levels that allow you to be at peace with your decisions. Diversification does not mean you need to own a large quantity of stocks or funds. You can be diversified with as few as four or five stocks as long as they are not in the same industry. You can be diversifed in just one mutual fund, if that fund includes diversification as one of its goals.

In addition to poor diversification, leverage is another aspect of investing that causes heartburn. The leverage of individual investors is no different than that of the large investment houses and mortgage companies feeding on subprime loans and now shutting down for having choked on their previously profitable deals.

Somewhere out there in investment land is the guy that bought into a highly leveraged company or hedge fund and was so smart he did it on margin. That guys going down faster than an amateur boxer getting hit by Mohamed Ali in his prime, plus he is not sleeping, and when and if he gets up he is going to have one heck of a headache.

Some investors think that they need to use leverage to speed up there investment returns because they have a short time frame having started late in life. This is another falsehood, because as the market drops there are more and more bargains to be had -- including today. This means those with cash will be making some fast money in the coming year. It will be very interesting to learn what Warren Buffett of Berkshire Hathaway (NYSE: BRK.A) does with his mountains of cash in the coming months. As a matter of fact Berkshire is pretty well diversified all by itself.

Those of you who are new to BloggingStocts can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well - INCLUDING ANY BAD CALLS.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.