One of the biggest questions new investors face is simple: how do I know what stocks to pick?
At Michael Leslie Investments, we often recommend portioning some of your portfolio to individual stocks. Whether this is 10 percent or 40 percent, the challenge is deciding which companies to buy. Working with a financial advisor can take that burden off your plate, and robo-advisors offer simple portfolio options by assigning you to a risk category such as low, moderate, or aggressive. But those tools do not make the same changes you would make if you managed your own account. Their main goal is diversification and matching market returns, which historically average 8 to 10 percent a year.
If you want to do it yourself, many experts recommend holding 10 to 20 individual stocks in addition to broader investments like mutual funds or ETFs. This approach can complement your portfolio while still letting you participate in companies you believe in.
The Importance of Diversification
A good philosophy is to diversify even within your individual stock picks. If you choose only semiconductor companies, for example, they will likely rise and fall together. When the sector drops, your portfolio could take a larger hit than necessary. This is where many investors get into trouble, panicking during downturns or regretting not buying into stronger performers. The reality is that many industries trade in similar rhythms, so careful research is key to avoiding overlap.
Of your 10 to 20 stocks, each type can play an important role. A defensive stock like McDonald’s may steady your portfolio in tough times, while a high-growth company like Shopify could capture strong upside. Even stocks that have already run up in price may continue climbing, while beaten-down names may eventually recover. The most important part is having a rationale behind each choice.
Building a Rationale for Your Picks
Every stock in your portfolio should come with a story. That story explains why you believe in the company now and why it fits your goals.
For example:
- McDonald’s could be your top choice because you expect a downturn and want a defensive stock with a stable future.
- Shopify could be a top pick because you believe in ongoing tech growth and a strong economy.
- Costco might stand out because you see firsthand how popular it has become and think investors have more upside to price in.
- Starbucks could appeal as a blue-chip with recovery potential despite recent struggles.
One of my favorite rationales early on came from Amazon. When the company rolled out its own delivery trucks, it signaled that Prime demand was so strong that existing carriers could not keep up. Seeing those trucks on the road every day reinforced the idea that Amazon stock was not slowing down anytime soon. That story is still a core reason I why hold the stock.
Charts and stock price graphs are another piece of the puzzle. Understanding whether a company has been trending up, consolidating, or recovering from a decline can strengthen your rationale. The numbers often tell part of the story, and pairing that with your own research can give you more conviction.
Spotting Unique Opportunities
In reality, every public company could be considered for your portfolio. The challenge is finding the opportunities others might miss. The more research you do, the more you can uncover small details that create an edge.
It might have been easy to simply buy the ten largest companies. But better opportunities came to those who recognized that Netflix had become irreplaceable even as critics worried about competition in 2022, or who held Tesla in 2023 while anticipating its push into autonomous driving. Others might have seen the rise of online sports betting with DraftKings, or recognized the comeback potential of cloud companies like Cloudflare, Zscaler, and Snowflake.
These insights all come down to having a story, backed by research and conviction.
The Bottom Line
There is no shortcut to becoming a premier investor. Success comes from having a clear and proven rationale behind every pick. Whether it is the growth of Amazon’s delivery network or the defensive power of McDonald’s, your story helps you stay focused when markets move against you. The more thought you put into each stock, the stronger your portfolio will be.
Ready to Build Your Portfolio?
If you are looking to add individual stocks to your portfolio but want help balancing risk and opportunity, we are here to guide you. Schedule a consultation with Michael Leslie Investments today and learn how a tailored strategy can help you build wealth with confidence.
