When the stock market came tumbling down during the Great Recession, many investors ran for the hills. Jim Wang, the founder of Best Wallet Hacks, had a different idea. He saw an opportunity in the low stock prices and bought shares in several companies, including Southwest Airlines. That single stock investment returned 950% within 10 years of Wang's 2009 investment.
Common wisdom in the stock market today tells most investors to avoid individual stocks in favor of low-fee funds. However, there are plenty of examples of investors hitting the jackpot on a single stock investment or a handful of good picks.
While single stocks are riskier than a diverse portfolio, they offer opportunities for a big payoff if your investment and timing are right.
Key Takeaways
- Buying single stocks can give you more control over your portfolio and investment decisions.
- With research and great timing, you may be able to spot a winning stock that goes on to increase its value many times over.
- Be prepared for other factors that could disrupt the value of your pick and for losses in your portfolio, which may offset your gains.
The Single-Stock Debate
While the stock market has been a popular investment option for a very long time, the way people invest is changing. Over the last few years, single-stock investments have gone out of favor when compared to low-cost index funds, but many investors still stick with portfolios of individual stocks.
Advocates for low-cost funds argue that investors are best off buying a broad portfolio of stocks that emulates the market as a whole. On the other hand, advocates for single stocks appreciate the granular control of each investment and the portfolio as a whole.
Note
There is no right or wrong answer here. You just need to figure out what works best for your investment goals and risk tolerance.
Examples of Single-Stock Investment Success
Remember that not every stock pick will work out in your favor. However, it is possible to make a really lucky guess that will pay off down the line.
To show exactly how well some single-stock investments pay off, here's a success story from an expert in the world of investing. Julie Rains, a blogger atInvesting to Thrive, advocates investing in single stocks as part of a well-constructed portfolio. Julie invested $7,000 in California-based computer-graphics-chip manufacturer Nvidia. The stock became a tenbagger; its value increased 10 times to more than $95,000 after she purchased it, as NVDA achieved advancements in deep learning and software for thedriverless carmarket.
Expect Offsetting Losses
Just because one investment was a breakout success does not mean that every investment will perform well. Consider the investors who struck it rich with a small investment in Bitcoin. While it's not a single stock, Bitcoin investments have many of the same characteristics as investments in a single stock. An investor who put $100 into Bitcoin in 2010, when a single bitcoin could be bought for 10 cents, could realize tens of millions in gains if they held on to that investment until 2021.
Massive gains are certainly outside of the norm. Furthermore, if you hold multiple stocks in your portfolio, some of them are bound to perform poorly, offsetting the gains you have made. It's nearly impossible to pick all winners all the time.
What Are Your Chances?
If you start buying single stocks, what are the odds you will have the same success as Wang or Rains? The somewhat frustrating answer is that it depends.
The future performance of single stocks is based on many factors, including the company's financial performance and overall economic and market conditions. A change in interest rates or unemployment figures is often enough to send stocks into a tizzy, and earnings announcements can have a major impact in the short term as well.
Note
Every stock is unique, as is every trade. Even when it comes to the same company, two trades will not perform the same unless both positions were purchased for the same price.
To get the best results, focus on a long-term investment strategy. If you focus your investments in companies with a strong financial foundation and a proven business model, they are very likely to go up over time. There is always a risk that their values will decline, but much more so with a short time horizon than with a longer one.
There are no guarantees in the stock market, and single-stock investments are riskier than investing in a diverse portfolio. Still, sometimes, those single stocks work out great and offer amazing returns. When that happens, you've found the holy grail of the stock market.
Frequently Asked Questions (FAQs)
Can one share of a stock make you rich?
Getting rich off one company's stock is certainly possible, but doing so with just one share of a stock is much less likely. It isn't impossible, but you must consider the percentage gains that would be necessary to get rich off such a small investment. For example, if a stock share costs $100 and it becomes a tenbagger, you'll have $1,000, and many wouldn't consider having $1,000 to be "rich."
How do I buy individual stocks?
Buying individual stocks is largely the same process as buying ETFs, mutual funds, and bonds. You'll need to open and fund a brokerage account that gives you access to the market. From there, you can use a stock screener to filter through the market and narrow down your choices. Once you are ready to buy a stock, you just need to place a buy order.
FAQs
The growth of a single share depends on the company's performance. While a single share might not make you rich, selecting a company with potential can lead to significant value increases over time.
Can one stock make you rich? ›
Yes, if your goals are realistic. Although you hear of making a killing with a stock that doubles, triples, or quadruples in price, such occurrences are rare, and/or usually reserved for day traders or institutional investors who take a company public.
Can you make money on individual stocks? ›
Yes, it's technically possible to earn higher returns with individual stocks than in an index fund, but you'll need to put some sweat into researching companies to earn those returns, and the likelihood that you'll actually lose money is higher.
Can you get rich off $1 stocks? ›
Yes, you can make money with penny stocks, but you can also make money playing the lottery, though you probably won't. To make money in penny stocks, you have to be able to separate the good companies from the bad, and that means you have to be able to analyze companies.
Is it a good idea to invest in only one stock? ›
Going back to portfolio theory, this means more risk with individual stocks unless you own quite a few stocks. Achieving this diversification is harder the less money you have. Especially when you start investing, you are subjecting yourself to more risk due to the lack of diversity.
Has anyone ever gotten rich from stocks? ›
Certain billionaires made their fortunes in the stock market. The list includes John Paulson, Warren Buffett, James Simons, Ray Dalio, Carl Icahn, and Dan Loeb. Buffett is by far the richest person of these six famous investors, with a net worth of $116 billion.
Can the S&P 500 make you a millionaire? ›
If the S&P 500 outperforms its historical average and generates, say, a 12% annual return, you would reach $1 million in 26 years by investing $500 a month.
Can you live off of stocks alone? ›
To live off of dividend income alone, you need to receive enough dividend payments each year to cover your expenses. Once you know how much income you need to cover your expenses, you can divide that by the average dividend yield of your portfolio to get a rough estimate of how much you need to invest.
Is it smart to own individual stocks? ›
Individual stock investing can be exciting and potentially lucrative, but it's important to consider whether it's the right approach for your investment goals and financial situation. Determining your risk tolerance is a crucial factor when it comes to investing in individual stocks.
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
4 Ways to Grow $100,000 Into $1 Million for Retirement Savings
- Index funds. ...
- Dividend-paying stocks. ...
- Growth stocks. ...
- Value stocks.
If you can keep your money in the market for 10, 20 or even 30 years, your potential to build wealth is tremendous. Think about it this way: If you put $10,000 in the market and earn 10% per year, taking out your profits each year, you'll have a net profit of $30,000 after 30 years, or three times your money.
Are penny stocks illegal? ›
Penny stocks are legal, but they are often manipulated. Penny stocks get their name because of their low share price. Any stock trading below $5 a share is generally considered a penny stock.
Is owning 100 stocks too many? ›
It's a good idea to own a few dozen stocks to maintain a diversified portfolio. If you load up on too many stocks, you might struggle to keep tabs on all of them. Buying ETFs can be a good way to diversify without adding too much work for yourself.
How many stocks should I own as a beginner? ›
What's the right number of companies to invest in, even if portfolio size doesn't matter? “Studies show there's statistical significance to the rule of thumb for 20 to 30 stocks to achieve meaningful diversification,” says Aleksandr Spencer, CFA® and chief investment officer at Bogart Wealth.
How much should I have in a single stock? ›
Therefore, sticking to the rule of keeping no more than 10-15% of your overall portfolio invested in a single stock may become even more critical of a benchmark to follow both to mitigate volatility, potential returns, and hazards to your overall financial life.
How many stocks should I own to get rich? ›
Assuming you do go down the road of picking individual stocks, you'll also want to make sure you hold enough of them so as not to concentrate too much of your wealth in any one company or industry. Usually this means holding somewhere between 20 and 30 stocks unless your portfolio is very small.
Can you get rich fast with stocks? ›
No, you cannot get rich off stocks overnight. Getting rich from stocks takes time and you need to consistently invest in stocks to build wealth. On average, you should see a roughly 7% annual return if you invest in the S&P 500 for example.
Why are single stocks high risk? ›
The risks are too great with individual stocks
Financial pros like Benz urge investors to build broadly diversified portfolios for a reason: While the overall historical trajectory of the stock market has trended upward, any individual stock has a chance to decline sharply in price and destroy your portfolio's returns.
What stock will make me money fast? ›
In addition to Tesla, Microsoft Corp (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN) and NVIDIA Corp (NASDAQ:NVDA) are among the top stocks hedge funds and Wall Street analysts are buying.
