Can you get Rich from Trading in Only One Stock?
My entire account was all in TESLA stock, so yeah I was rich AF. I was a millionaire until Elon tweeted. I survived Elon's tweet, and all I got was a lousy mug.
All jokes aside, do people profit from investing in only one stock? This is really against the traditional investing tips from legendary investors like Warren Buffet. However, we have seen individual retail investors putting all of their funds into one particular stock and they saw some pretty outrageous returns.
Think of the Wall Street Bets movement in 2021. Many retail investors stand out as Gamestop and AMC stocks go from low double digits to rallying thousands of percent. It would be like if you went to sleep on earth and woke up on the moon.
At the same time, as day traders, we often have several stocks on our watchlist every single morning. We care less about the long term fundamentals of the stock and more so on whether a stock could provide us the range and volatility for some short term profit.
Today we’re going to explore this idea and answer if it is possible to make a living or get rich trading or investing in one stock. If the answer is yes, what is the best way for us to do so?
Investment Standpoint
Let's start approaching this topic from an investing standpoint. Should we be all in one stock and cross our fingers that we’ll just get rich? When investing long term, we often hear this phrase diversification and to make sure you diversify your portfolio so you don't put all your eggs in one basket.
If you do, guess what happens when the basket breaks? That’s right, you have scrambled eggs! Not the delicious kind from IHOP, but the gross powdery kind similar to what you’d get from a high school cafeteria.
There are actually many valid reasons to diversify your investments. Diversification in investing means having your capital allocated into different asset classes such as stocks, real estates, cryptos, or bonds, and in different industries such as tech, consumer stables, financials etc.
Imagine if you were only invested in a single stock or a single sector in tech during the 2000 dotcom hype. If so, then you probably went broke when the bubble burst. Many of the technology stocks went plummeting down. Some did survive and are now the leaders in today's technology sector. These include giants such as Apple(AAPL), Amazon(AMZN) and Google(GOOGL).
It's because of investment bubbles going burst like this, conventional wisdom tells us to diversify our portfolio just in case a stock or an entire sector crashes, we just lose some, not all of our hard-earned money.
If one sector such as tech rolls over, many other less volatile stocks such as banks or utilities could outperform and lift up the value of your portfolio.
This mantra of “diversify your portfolio” is good advice for general investors because it protects us. I mean what happens if you have all your money in one stock and that stock goes out of business?
To avoid situations like this, generally speaking, it's a safe and sound idea to diversify your investment portfolio if you’re investing for a longer period of time. For most investors, the easiest way to achieve diversification is to invest in index funds, which essentially means you could own baskets of let's say 500 companies in one stock.
If you were invested in the VOO,Vanguard 500 Index Fund ETF, you are investing in 500 of the biggest companies in the United States. Basically, this is a fund that tracks the S&P 500. Within this fund, you are diversified in different industries such as Technology, Health care, Consumer discretionary and many many more.
Moving beyond diversification
Now, we know that for most investors, diversification is a good idea, since it limits the risk of losing a significant amount of our portfolio. This does bring us back to the main question of can you get rich off of one stock?
I mean, do you have to diversify your money that much? After all, we have heard, “over diversification leads to average returns,” and billionaire investor Mark Cuban said, “Diversification is for idiots.”
I know he is ONLY worth 4.5 Billion dollars, but is he onto something?
What if you had put $1,000 into AMZN in October 2000, when it was trading for $6? Now you would have around $500k. Annnnd you’d also be that annoying prick at the parties who tells everyone. The same is true for a lot of popular tickers like: TSLA, AAPL, even GME and MRNA.
Cough… my personal favorite stock and vaccine to take, but not really.
Like I’ve mentioned before in a video revealing my investments, I do invest heavily into one particular sector, real estate. If you look at the percentage allocation, my money is actually not that evenly spread out or diversified in different asset classes.
As for stock market investing, I am much more diversified present-day with most of the capital in ETFs for the S&P 500, tech, financial, and energy dividend ETFs in Canada. However, the original capital I built up for this stock investment and also where I had the funding for my day trading account were not from these diversified stock investments.
My background
A substantial portion of these funds were, in fact, from the profits as a result of investing in highly concentrated individual stocks since 2013 and 2014. As I've mentioned before, before I quit my job to become a full-time day trader, I was actually a VFX artist working in the film industry.
I have a Bachelor's degree in film and computer graphics. It's from my 4 years of college that I became very familiar with all the software the booming film and gaming industry heavily relies on.
Yes, we’re talking about NVIDIA chips to render out the images you guys see on screens, as well as to produce the real-time rendering in gaming. So many people take the high-speed rendering in movies and games nowadays for granted, and forget that just 5 years ago, computer graphics looked way different.
The high quality of 3D rendering you see today would not have been possible without the technological breakthrough by companies like NVIDIA(NVDA), Autodesk Inc.(ADSK) and Adobe(ADBE). It is specifically these 3 stocks and only them, that I used to start my investing journey. They paved the foundation for me in my early twenties.
I didn’t have much to start as a broke college student, but it started with $100 a month and slowly increased to a couple hundred per month to a couple of thousands. I was buying NVDA at the split-adjusted price from $4 to $12, Adobe around $60 to $70 and Autodesk around $50.
I have since sold all of these individual investments and started diversifying these profits into real estate and index funds, but without these initially concentrated investment profits, I would have significantly less today.
Looking back to more than 8 years ago, I didn't invest in NVDA, ADSK, and ADBE thinking that I would get rich from these growth stocks. I simply invested in them because I use their products daily, and I truly understood what they were capable of. It was fortunate how the demand grew dramatically just during the 4 years I was in college.
I remember attending international computer graphics conferences hosted by these companies and being completely fascinated by the products they were developing as well as what they projected the future would look like with their software and hardware. I remember seeing their logos on every single computer.
Yes I know, I did not exactly invest in just one stock and got rich from it, but I did invest heavily into a single industry, computer graphics technology. That's what I understood well.
The last time I invested heavily in a single stock again was in 2019, namely TSLA from a $75 split-adjusted price, and it's now the biggest weight in my individual stock holdings along with AAPL stock.
So obviously you can get rich from one stock; okay maybe I didn't get rich, but I did get a substantial financial net worth boost from just one stock. However, I'm not saying everyone should go out there and put all their money into one stock or a single sector like I did.
Expertise in an area
If you are an expert in an area, you’ll see the growth and use the products from a few very specific companies like I did. That might be your opportunity right there to achieve above average returns.
However, I do think it's a good idea to diversify eventually, once you’ve seen those concentrated investments take hundreds or thousands of percent to go to the moon. That's the reason I’ve moved those profits into index funds, real estate, and for day trading.
On the other hand, if you don't think you are an expert in any highly specialized and growing industry, I would not recommend investing in just a single stock or a single sector. Reading other people’s research online on Wallstreet bets reddit, twitter or tiktok does not make you an expert. That might have worked in 2021, but is probably not sustainable long term.
The same can be true with trading a single stock. When we think about the world’s best athletes, musicians, ballerinas, surgeons, etc. They thrive because they have spent their 10,000 hours on repetition and doing the same thing every day, over and over again until they find perfection.
The same analogy can be made with day trading. Your repetition and experience in trading one single stock can make you a master of that stock and lead you to greater success.
Over time, you will become familiarized with the stock’s prior support and resistance levels. You’ll know how its price action reacts to various volume, key levels and event catalysts.
That's the reason, many times I will have one or two stocks that I love to trade almost daily every few months. That was the case for AMC in the summer of 2021. I loved longing and shorting the stock to the moon and back down the earth.
Of course, I had many people call me paper hands, but hey, at least I'm green and walked away with a profit and am still living to trade now.
I did the same with trading Novavax Inc.(NVAX) and Moderna(MRNA) in 2021 as well, until Moderna stock burned me alive when I was longing that turd. Now I'm shorting every single bounce to the ground.
Once again, I must emphasize, I hate that stock both in real life and in the stock market. Somebody just short this stock to double digits please.
Currently, in a downtrending market environment, my go to stocks to trade daily are Advanced Micro Devices(AMD) and NVDA. I trade both of these names long on market rally days, and when the market is down, I short them to hop on the ride to no bounce city.
Conclusion
Most new traders will find the most success focusing on just a small piece of the puzzle and repeating that over and over again. That goes for practicing the same setups and practicing on the same stocks as well.
I'm not saying this for you to trade exactly the same stocks as I do, but rather, to dig into your past data and find 1 or 2 stocks that you have had a history of success with.
You need to be able to clearly read their price action and be familiar with the amount of risk the price and range requires. As always, risk management should always be the priority. Just remember that time and experience are going to be your best teachers in the stock market.
