There's little doubt that buying stocks in quality companies and holding them for years is the clearest path to generating long-term wealth. As with so many things, however, the devil is in the details. Should investors concentrate their portfolio and rely on just a few successful companies, or let their winners do the heavy lifting while investing in the next generation of moonshot stocks?
On this clip from Motley Fool Live, recorded on Jan. 29, "The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Brian Withers walk investors through several winning strategies and discuss why it's such a personal choice.
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Danny Vena: I sure do. Looking at the most up voted question right now by Dominic Renauldi, and it's says, "Strategy number one: Several Fool analysts stop investing in positions at 3% to 5%, and then let them do the rest of the work so they can invest in potential moonshots. Strategy number two: Have a small condensed portfolio like Brian Withers. Which do you like for more life changing returns?"
Jason Hall: Here's my guess. Brian Withers probably likes the first one better. [laughter] Sorry, Danny. Go ahead. [laughter]
Danny Vena: That's OK. When I look at these different strategies, there is no one that is the silver bullet. What I will say is, I use a combination of both of those strategies. I generally do not invest more than 3% to 5% percent of my original cash into a single company, and I generally do it in smaller amounts over time.
But then, once a position gets to that size or higher in my portfolio, it's already gotten to the point where it can do the heavy lifting.
I don't have to put little dribs and drabs of more money in it because a lot of times, the stock price is going to move enough, and the position size is going to move more in a day than I could add to it in a month. Generally speaking, I think people need to do what is best for them, but in the case of my portfolio, yeah, go ahead invest in something until it gets to 3% to 5%, let it do the heavy lifting, and then take the rest of that money and find out what the next big thing is.
Jason Hall: Let's see here. I was going to say, Brian, maybe you should chime into this.
Brian Withers: I do want to make a comment. In that, I'm not voting for one or the other. Like a lot of summarizing the videos, Jason, when you and I talked about how many stocks you should own, and people nearing retirement, and all kind of stuff. There's a ton of considerations on how many stocks you should own.
What's important to know is if you have less stocks, the average size of those stocks [positions] is going to be much, much bigger. Over the last few years, the average size of my individual holdings has grown 4X.
There's certainly an element of how much time I have to spend looking at these things, and how much time and research go into some of these positions that I have. I know the size of your positions are way smaller than mine, and I think I remember you saying something like there's no way in hell I would be able to sit on that stuff. It's a very personal question, and I wouldn't try to do something that you're not comfortable with because somebody else was doing it.
Jason Hall: Yeah. I think the key thing here is, it's great to talk to other investors and see how they do and understand why, because it can help inform what works best for you. The bottom line is that Brian and I have very different ways we invest, and Danny is somewhere in the middle. We have three different ways that we invest, that there's nuances that we don't have a lot of overlap, and we find what works best for us.