To succeed at investing is not as difficult as it may seem. In fact, the common "buy low, sell high" wisdom might actually be preventing you from reaping the full potential of the best companies in your portfolio.
The best investors generally adhere to a few basic principles to outperform the market and generate life-changing returns. At The Motley Fool, co-founders Tom and David Gardner have been successful both by identifying companies with sustainable competitive advantages and by buying and holding stocks for the long term -- which eliminates the need to show consistently positive results on a quarterly basis.
One of the Gardners' key investing philosophies is that investors should add to their best-performing holdings rather than trim them. This may sound counterintuitive since conventional investing strategy teaches investors to rebalance their portfolios by trimming positions in winners and adding exposure to underperforming sectors.
Successful businesses tend to succeed for a reason. Therefore, stock market winners are more likely to continue to win. When Motley Fool investing services such as Motley Fool Stock Advisor and Motley Fool Rule Breakers re-recommend buying a stock, it's called a "double down buy alert."
Double-down stock trading strategy
There are a number of benefits to the double-down trading strategy. First, the best stock to buy is often one you already own. While it's important to diversify your portfolio by owning at least 15-20 stocks, the stocks you already own tend to be the ones that you understand the best. Therefore, you can more easily capitalize on opportunities that arise when the stock is unusually cheap or when it loses value due to short-term reasons like simply missing earnings estimates.
The other reason why the double-down stock-buying strategy works is because winners tend to keep winning. While it may be tempting to add to your losers with the hope that they'll gain substantial value, you're better off selling your losers and reallocating that money to your winners. Past performance isn't a perfect indicator of future growth, but it's one of the most reliable signals available. Companies that outperform generally do so because they are better managed, can create and retain competitive advantages, and are implementing disruptive strategies.
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