Should You Consider Building An Investment Strategy Around One Stock?

Any financial advisor will tell you that you should have a fully diversified portfolio in order to spread your risk

. However the reality is that it is quite possible to make some excellent returns just by trading one single stock.

It's not something that I would personally recommend, but it can provide you with real wealth if you pick the right company. I know this to be true because I know a few millionaires in the UK that have done this just by investing in one or two really good stocks when they were in their infancy.

You can also make money from just one stock with a much more cautious approach. The key is to think like Warren Buffett and start looking for really large market-leading companies that have many years of continuous dividend and earnings growth behind them. As long as they are widely expected to continue this growth in the years to come, you should make some very handsome profits.

There are two ways of making money here, but both methods involve buying more shares or opening additional long positions when the market is oversold. You can check this out by looking at various different indicators such as RSI, CCI and stochastics, for example.

From a trading point of view, you can keep adding long positions on any of these market dips, and sell when the indicators reach an oversold position. The long-term upward trend should put these positions into a healthy profit at some stage.

From an investing point of view, you can simply keep on accumulating shares every time the stock market dips and the price of the company you have invested in falls as a result. Again the prevailing upward trend should enable you to see real capital growth over several years, and these profits will be magnified if you keep on reinvesting any dividends that you receive each year. You can either hold on to all your shares forever, or you can keep on buying low and selling high every time the price is in oversold territory.

The point I want to make is that there are plenty of really profitable companies out there, so in theory there is no reason why you shouldn't be able to make money trading just one share. Of course your choice of company is absolutely critical, but they are not that hard to find. You just need to do some research. There are many traders and investors who have done very well trading just one or two stocks, so it is definitely possible to generate profits trading this way.

by: John Robertson

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