Is it possible to become a millionaire by owning shares? I think it is. But whether I can successfully aim for a million depends on how much I have available to invest and what I do with it.
I think I would need a fair bit of money to aim realistically for that level of portfolio. It would not be necessary to have it upfront – I could always drip-feed it in regularly over time. After all, an ambitious goal like becoming a stock market millionaire is a long-term project.
But it also matters what shares I put my funds into. Rather than buying into dozens of different companies and hoping one or two of them hit the big time, I would stick to a portfolio of just five to 10 companies.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
The good and the great
Lots of companies do quite well. If I held their shares over the course of time, I could hopefully see some price appreciation.
If I bought Unilever five years ago, for example, my shares would now be worth 13% more than I paid for them and I would have received a steady stream of dividends to boot. An investment in Next during that time would have seen my portfolio value rise 37% and I would also have had a modest dividend income.
Both of those shares have been good performers in the past five years – and I think that could be true in future. But there is a difference between good and great.
Next’s 37% price increase is good, but it is hardly in the same ballpark as Shopify’s increase of 263% in that period or the 255% jump in the Apple share price across the past five years.
That matters because my overall portfolio performance as I aim for a million will reflect how well the shares in it do. If I mostly invest in shares that turn in a good performance, I could do quite well. But I could see much stronger returns if I only invested in great companies.
Best of the best
I would still diversify my portfolio as a way of managing my risk.
But my overall performance ought to be markedly better if I focus on buying shares in just a few really great companies rather than several dozen good ones.
One objection may be that there are not many businesses as strong as Apple. But that is exactly the point! It is precisely because few firms have such lucrative business models that investing in such a company might be so rewarding for me as a shareholder.
What about finding them? I actually do not think it is that difficult to find great businesses. After all, Apple was hardly hiding its light under a bushel five years ago.
Buying cheap shares
What can be difficult, though, is buying into great businesses at a cheap price.
By “cheap” I mean purchasing the shares for significantly less than what I think is their long-term value. I cannot get the sort of returns I want as I aim for a million if I overpay, even for great businesses.
That is why I spend time identifying businesses I think have brilliant commercial prospects. Then, I wait patiently for opportunities to add them to my portfolio at an attractive price.
