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Going All In: Should Investors Put A Significant Amount of Capital Into One Stock?

Expert Panel
POST WRITTEN BY
Forbes Finance Council
This article is more than 6 years old.

You've been paying attention to industry news and see that a particular company appears ready to break out soon. Perhaps it's preparing to release a product or service and you know there will be a strong demand. Perhaps you've researched the company culture and ethics and feel that how the firm does business is better than its competitors, which means the company will pull ahead in the long run. Or perhaps the stock is a regular performer, and you want to take advantage of this.

Regardless of the reason, some investors end up debating with themselves about whether or not to jump on an opportunity they see by investing heavily in a single company. Below, Forbes Finance Council members share their viewpoints on the practice.

All photos courtesy of Forbes Councils members.

1. Don't Put In More Than 20% Of Your Net Worth. 

I would suggest the very maximum you should put in a single stock is 20% of your net worth. The best portfolio is an undiversified portfolio when you are right, but the worse portfolio is undiversified when you are wrong. Avoid the overconfidence that you have insight that others don't. This humility should cap the exposure to a reasonable amount and, should something go wrong, you can recover. - Darryl LyonsPAX Financial Group LLC

2. A Balanced Approach To Investing Is The Only Way To Go. 

The key to success in investing is a consistently balanced approach over time. Sector or single-stock investing may, on rare occasions, yield better-than-average results. However, over time, the market has been proven to go up fairly consistently, where as sectors or single stocks have proven that the risk has not been worth the seldom-seen reward. - Perry DalessioD'Alessio Tocci & Pell, LLP

3. Are You Gambling Or Investing?

It's incredibly tempting to go all in with one investment, but that's more akin to gambling than it is investing. Nobody can be sure if one investment will go up or down in the future. You're betting on a hunch rather than using smart strategy. Diversification can reduce risk and boost returns. You might miss a rare big win, but you'll also avoid the heartbreak of losing it all on one equity. - Elle KaplanLexION Capital

4. Really Understand A Company's Key Value Drivers Before Making The Move. 

An investor who is about to take a concentrated position in a stock should be sure to conduct as much due diligence as possible and really try to understand the company’s key value drivers. It helps if you can confidently say you have a firm grasp on the value the company is providing and its competitive advantages before contributing significant capital to one bet. - Ibrahim AlHusseiniThe Husseini Group

5. Do It, If You Are Well-Researched And Prepared. 

Diversification is a fancy word for lack of conviction. When it comes to investments, conviction is based on research, analysis, subject matter expertise and hard work. If you spent 30 years in the widget industry and know it inside and out, then you should absolutely deploy your knowledge and invest in a widget company. That's not gambling. That's investing with deep conviction. - Jason LeeDailyPay

6. Ask Yourself These Questions Before Deciding. 

Ask yourself these questions: Is there really and truly no other stock that can provide similar performance? Is this truly the best time to buy the stock and is there a chance it can be bought for less during a future market event? Is this business model easily replicated by competitors? If stock performance is reliant upon current leadership, are they going to stay? Do they have their own money in? - Paul EwingProsperity Advisory Group

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

7. In Most Cases, This Ends Badly. 

Everyone says they can brave the fluctuations of the market and then pull out the moment they see their investment take the slightest dip. See investing as a long-term strategy for wealth-building or retirement. Invest in index funds or a lifecycle fund instead. - Ismael WrixenFE International