When it comes to investing, I recommend that you own at least 15 different stocks. One reason for this is to diversify your risk.
However…it only takes one winner to set you up for the rest of your life!
There are stories about people that bought one stock that made them very wealthy over the years. I’ve mentioned quite a few myself in previous posts.
A big winner is very easy to spot in hindsight – but not so simple to identify in real time.
This is another reason why I recommend owning at least 15 companies – to increase your chances of finding that big winner.
When I say that you only need one out of fifteen to have huge success, I’m not lying! Here’s how the math works out in a real life scenario. Suppose you invest $1000 each in fifteen different stocks. Over time, they perform like this:
- 10 lose money.
- 3 are mediocre.
- 1 is solid – up 100%.
- 1 is up 100 times in value.
You could have lost all of your money in the 14 other investments – losing $14,000 – if each company went to zero. (The likelihood of that happening is slim to none. It is rare to lose 100% of your money unless you are buying penny stocks.) But your profit of $100,000 in just one winner would more than make up for that loss!
In the 1980s, a small business owner named Stewart Horejsi was running his family’s welding business when competition started to hurt it. It was difficult for welding companies to distinguish themselves in any way, so they often simply undercut each other in order to gain business.
Stewart realized that reinvesting any money into a failing business would be futile.
After reading about an investor named Warren Buffett, who ran a company called Berkshire Hathaway, Stewart was convinced of the best way to allocate capital. He invested in Warren Buffett’s company.
At the time of his first investment, Berkshire was around $280 a share. Every time Stewart got extra cash, he bought more shares.
Ultimately, Stewart invested about $50,000 in Berkshire Hathaway over many years. That investment grew to over a billion dollars.
That, my friends, is why you only need one winner.
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.
Click the image of the book at left to be taken to its Amazon page. (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)
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