The idea of becoming a millionaire has a certain appeal for many people. Some invest in the stock market, hoping that by buying dozens of different shares they might strike gold by finding a small company that turns out to be the next Tesla or Amazon. My own approach to aim for a million would be different. I would happily try to achieve that target by buying just five to 10 different shares.
Here’s why.
Focus on brilliant quality
If I was a sports team manager and could choose a bench of 50 decent players or the best five to 10 in the nation, I know what I would choose.
It is the same when it comes to shares, in my opinion.
The Warren Buffett approach to investing
Rather than diluting my results by trying to cover the waterfront, I would take the Warren Buffett approach to focussing on what seem like great shares.
Buffett has said that many investors would improve their investment returns by imagining that they had a punch card with 20 spaces and had to use one for every investment choice they made in their lifetime.
The key point, in my opinion, is that if we thought we had fewer choices we would focus more on the quality of our decisions.
From an investor’s perspective that can make a big difference.
A portfolio stacked with shares that perform strongly can, over time, massively outperform one focussed on shares that merely do quite well. That is why, to aim for a million, I would be happy to buy under a dozen different shares.
Finding shares to buy
But while that may sound good in theory, what does it mean in practice?
Making fewer investments means taking time and effort to find the few really great seeming opportunities that could potentially move the needle as I aim for a million.
For example, I may find a share I like but feel some concerns about risks I do not understand, or nervousness that it is not very attractively valued.
Rather than getting carried away with excitement, I try to pay attention to such red flags and so may decide not to invest on that basis.
Becoming a stock market millionaire
But finding brilliant shares to buy is only one part of the equation. Without spending the right sort of money on buying them, how can one practically aim for a million?
So, if I wanted to try and fulfil that ambition, I would also get into a serious habit of regular saving to invest.
As an example, imagine that I was able to achieve an average compound annual growth rate of 15% in my portfolio (a figure Buffett has regularly achieved but that is undoubtedly a challenge for many investors).
By investing £1,000 each month in my Stocks and Shares ISA and achieving that sort of result, I could have a million pound portfolio in less than a couple of decades from now. I might not, of course, as returns from investing are not guaranteed. But I think I have a chance.
