going in all on one stocks is a sure way to ruin?

Discussion in 'Trading' started by chipmunk, Oct 12, 2008.

  1. Or is it?

    We are told never put your eggs in one basket. Diversify. etc... It's become such a cliche. Do you ever question it?

    but I knew a trader who invested in one stock at a time and made millions. (he's drawdowns wre enormous but I guess if you make $2millin and give back $1million you are happy)

    If you wait for almost sure things and do not trade any old stock IS investing in one stock at a time a sure way to lose it all or make a fortune?
     
  2. Cutten

    Cutten

    It just increases your risk massively, that's the main drawback. If you have skill at picking stocks, then diversifying into at least 5 or 6 reduces your risk immensely, without reducing return that much.

    The key is to optimize returns versus risk, NOT to go for pure returns regardless of risk. If you put 20-30% into the next Dell Computer or Berkshire Hathaway, you are still going to become very rich. The extra risk of going 100% into it just isn't worth the chance of wiping out if something happens.
     
  3. I usually stick to about 4 at a time. But when I snag a big winner (and mos tof the time I have feelnig which ones are going to be the winners) I often wonder if I shouldn't have gone all in...

    But I guess it is painful when you are wrong (which will always happen)

    Cutten: What's your time frame for investing?
     
  4. wjk

    wjk

    I have been trading 1 or two stocks at a time for 5 years and decided to switch to the futures and swings on Q's or Diamonds because too often:

    Stock wouldn't move with the market.
    Good earnings not meeting expectations would tank the stock.
    Biotech: Failed phase tests or lack of FDA approvals disastrous.
    Unexpected company news resulting in halts.

    and my favorite: At the mercy of analysts.:mad: