MYTH-18. ONE CAN FOCUS ON A FEW STOCKS TO BUILD WEALTH
·
No, such a
strategy can rarely build long-term wealth.
·
It is easy to get
swayed by strong returns from a select few stocks over a short period of time.
· But sustaining such strong returns over a long period of time is uncommon.
·
Such a strategy
over the long run can expose you to higher risks, called concentration risks.
·
Concentration
risk is the probability of incurring losses by limiting your
portfolio to a select few stocks.
·
If a thematic fund allows the fund manager
to choose from very few stocks, it may face concentration risks.
· This is also the reason why diversification is the best strategy to build wealth over the long term.