Investing in stocks and shares can be lucrative for investors willing to conduct research, as well as use common sense and patience. There are many reasons why I think the current investment environment is well-suited to producing significant investment returns in 2021.
Global central banks and governments are continuing to financially support economies during the pandemic. Some of this money has ended up flowing into stocks and shares, pushing up stock prices. This is because with such low interest rates, investors can find far greater returns by investing in securities rather than savings accounts.
Is it possible to make 300% by investing in stocks and shares?
The long-term average stock market return is said to be 7%–10% per year. Making 300% may seem far-fetched and unattainable. In most years it might be more difficult, but 2020 and 2021 could prove to be unique in terms of investment returns.
Investing in particular sectors in 2021 could provide an above-average return, in my opinion. The arrival of Covid-19 vaccines could shift the world from lockdowns back to pre-pandemic normality. Just like it was possible to make outsized stock market returns in 2020 by investing in stocks benefiting from working from home, 2021 could be the opposite.
At some point in 2021, as lockdowns ease, holidays might be easier, people could flock back to high streets, and restaurants and bars could flourish. Prevented from going on holiday and eating out in 2020, many UK consumers have saved more cash. I think many are ready and willing to spend that extra cash. With so many depressed stocks and shares, there are opportunities for patient investors.
Size matters
I’d say it’s much easier to make 300% by investing in stocks and shares of smaller companies versus larger companies. There are several reasons for this. Smaller companies typically have faster growth rates, whereas larger companies tend to be more mature and exhibit slower growth.
Smaller companies also tend to be overlooked by institutional investors. Since institutional investors buy larger blocks of stock, they may find themselves owning too much of a small company. As private investors purchase fewer shares, they can benefit from under-researched, smaller companies.
Penny stocks, however, are too small in my opinion. They tend to be illiquid, much riskier, and volatile. I’d rather own small stocks with a market capitalisation of at least £50m.
My stocks and shares watchlist for outsized returns in 2021 includes Saga. This insurance and travel group has a market capitalisation of £380m, and share price of under £3. A few years ago it traded at over £30. Earnings in 2020 suffered from it’s focus on the over 50s in the travel sector. This cash-rich and ready-to-travel group could help Saga in 2021.
Another small company that I like is Best of the Best. I previously wrote about this online competition company as one of my best investment ideas in 2020. It climbed by over 300% in 2020 and is up over 40% so far in 2021. It continues to beat management earnings expectations and I think it will continue to succeed over the coming year.
