Though diversification is ideal, some investors find success in focusing in one company. If you’re new to investing, you can learn the ropes by starting out with a single company first. Though investing in one company has its advantages it is still wise to consider diversifying your investments at some point in the future.
One Company to Monitor
When you invest in multiple companies you must follow the news and updates all of those individual companies. Poring through annual reports for many different companies, especially if you’re new to stock investing, is time-consuming. If you invest in one company you have a single point of focus and the time to do more in-depth research on the company’s performance.
Larger Ownership Share
When you invest in one company instead of dividing your money up among many different companies, you take on a larger ownership share of one company in particular. For instance, if a company has 10,000 shares outstanding and you purchase 1,000 shares, you have a 10-percent stake. But if you only buy 300 shares and put the rest of your money with other companies, you only have a 3-percent stake.
Fewer Broker Fees
Most stock brokerages charge per trade for each company stock you want to buy. So if you decide to invest in more than one company, you might have to pay a fee for each transaction. For example, if the broker fee per trade is $8 and you buy 100 shares of company A and 100 shares of company B, you pay $16 in fees. On the other hand, if you invest in a single company (buy 200 shares from company A) you pay a single broker fee of $8 to buy the stock.
If you do decide to invest in a single firm, it should be with a company that you feel has a solid financial position and the potential for strong long-term growth. Because you lack diversification in your portfolio when you use this strategy, you're taking on a higher risk with your money. Look at the company's past and most current business reports, years in business, leadership, stock movements and historical financial data as well as news reports to make an informed decision. Consider purchasing a conservative number of shares now then increasing that number when you feel a bit more comfortable with the company’s performance. However, always keep in mind that stocks are a very volatile investment -- you take on a major risk when investing in any company.
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