There is nothing wrong with that, of course. Matching the long-term returns of the stock market is a respectable strategy, but it's generally seen as less exciting than active stock-picking. Sure, some people get more excited about macroeconomic effects and secular trends than they do over high-octane growth stocks, the best dividends, or the latest game-changing gadgets on store shelves.
But that's the exception to the general rule.
How can you apply active stock-picking in your own portfolio?
To be clear, there is absolutely nothing wrong with active stock picking, as long as you do it right. Whether you prefer growth investing, hunting value stocks, seeking robust dividends, or following a completely unique compass through Wall Street's wilderness, The Fool's suggested stock-picking method is very simple. Anyone can do it:
- Build up a diversified portfolio of at least 25 stocks over time. There's no rush, and many different roads can lead to substantial long-term gains. Just make sure to do your homework before investing real money in anything.
- Hold the stocks you buy for a long time. Master investor Warren Buffett famously prefers holding stocks "forever," but penciling in a five-year commitment is a good start.
- Add more cash to your portfolio on a regular basis. It doesn't need to be a lot -- it's the consistent infusion of new cash that matters. Once the 25-ticker basket is full, you can double down on your existing holdings or find new ideas.
- Hold on tight to your stocks through the inevitable storms and potholes along the way. The only way to lock in a loss is to sell when the stock price is down. Deep dips, like the initial coronavirus panic of 2020 or the subprime mortgage meltdown in 2008, are often great times to buy great stocks at a low price.
- Don't cash in your stubs as soon as you turn a profit. Let the winning stocks keep winning.
- Finally, set your sights on long-term returns. Day trading is essentially gambling on Wall Street instead of the Vegas Strip. Chasing incredible moonshot returns based on the hottest new trend or online rumor mills is not much better. Time and patience are the best tools of the wealth-building trade.
