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How to stack the odds in your portfolio’s favor

I often get asked about the stocks I like. 

Most of the questions are geared towards the hottest stocks right now. Rarely are people curious about long-term holds for their portfolio.

And that got me thinking…

Most new investors are attracted to the trading game by the allure of catching a “big win.” After all, it feels good to win, right?

I’ll give you a little insight into how I’ve caught some big winners… and losers—and why the latter usually don’t matter…


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A few winners make all the difference

Investing isn’t a one-and-done type of hobby. You see, you always have an opportunity to change your mind on a dime. Simply put, you’re in control of your investments. 

And while some new traders will try their hand one stock at a time… building a portfolio stacks the odds in your favor with a multi-year time frame.

I’ve had the opportunity to build multiple portfolios over my career. Most people who know me know that I don’t like to sell… I guess you can say that I like to collect stocks.

After buying and holding dozens of stocks for many years, there tends to be a theme that plays out over time. Let’s assume an investor holds 20–30 stocks. 

The return profile usually goes like this:

  • Most stocks will be average performers
  • A few stocks will be mega winners
  • A few stocks will be large losers

Now, those bullets may seem like a zero-sum game—meaning the end result will be basically zero for most investors. But that shouldn’t be the case if you’re serious about making money. 

When people shop for a large purchase, like a dishwasher, they can spend weeks on research. Spending over $1,000 tends to get people to focus! Shouldn’t the same go for stocks? 

So, if you spend a good portion of time sizing up companies—researching sales trends, earnings trends, etc.—the odds are good you’ll get a few great stocks in your portfolio.

Like I said, some stocks will be average, others will be big winners, and a few will be losers. But remember, the most you can lose on a long stock position is 100%. The stock can’t go below zero.

It’s the big winners that can theoretically go up an infinite amount. When you have a well thought-out portfolio, the winners will take care of the losers… and more.

The bottom line is this: Take the time to do some research. Don’t go all in on one stock. Diversify and look for quality businesses. You won’t get it perfect, so expect some losers. But that’s only part of the story. 

It only takes a few big winners to more than make up for the losses. And that’s what you should play for.

Luke Downey is the co-founder of Mapsignals, which focuses on finding outlier stocks by following the big money. Luke is also an options instructor with Investopedia Academy. Prior to Mapsignals, he spent many years on institutional derivatives desks at Cantor Fitzgerald & Jefferies, LLC.


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