By James Woolley
Many investors spend hours and hours looking at lots of different companies to find good quality stocks that they can add to their portfolio. However you could save yourself lots of time by simply picking one stock (the best stock you can find) and holding on to it for years and years. So is this a sound investment strategy?
Well I was giving this a lot of thought recently because I’ve been reading a few articles in the last few months talking about some of the so-called ISA millionaires. These are people in the UK who have turned their ISA into a six-figure sum. This is no mean feat because ISAs haven’t been around for that many years and the maximum amount you can contribute per year is currently £10,200, and has been a lot less than this.
Anyway the point is that some of the people that have reached this six-figure milestone did not do so by having well-balanced portfolios with solid-performing FTSE 100 companies, for instance. They did it by investing heavily in just one or two stocks that took off in a big way.
Now obviously this is a high-risk strategy. I’m sure others have tried it and lost most of their ISA capital because for every success story, there are lots more companies that will never become profitable companies, and ultimately go bankrupt.
However you can still make consistent profits by picking one stock and building an investment and trading strategy around that stock. You want to find a company that has a long track record of earnings and dividend growth, and is expected to continue growing for many years to come. If I was doing this, I would probably choose a company like Tesco because they are the biggest supermarket group in the UK and they are continually expanding both here in the UK and overseas.
Then you just need to think about when you will buy these shares. Ideally you should buy on any market dips because in the long run the share price should continue going upwards if earnings continue to grow. So you could buy more shares (or open a long position) when the RSI and stochastic indicators are below 20 or 30, and either hold on to them forever, or sell when these indicators are at overbought levels, for instance.
Plus if you want to boost your profits even further you should reinvest any dividend income straight back into the company (ideally when the stock is oversold). This will have a dramatic effect on your capital growth.
So the point is that you can make money trading just one stock. You can either go for broke by ploughing your cash into a smaller more speculative stock, or you can adopt the much more sensible and safer strategy of picking a big market-leading company and trading it, or accumulating more shares, every time it is oversold.
About the Author
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