Killarney

By Michael O&rsquo;Connor, theislandinvestor.com
<h3>There seems to be a narrative in the market suggesting that stocks typically go up over time, and therefore, with a little homework &#8216;my stock picks&#8217; will go up even more &#8211; but it isn&#8217;t that simple.</h3>
This isn&#8217;t a 50/50-coin toss.
 The concentration of winners is more severe than you think.
 The Russell 3000 Index has returned an average annualised return of 13% since 1980, but the disparity of returns that generate these profits is rarely focused on.
 The vast majority of the positive returns over time can be attributed to just 7% of stocks &#8211; the &#8216;mega winners&#8217;.
 In a similar report studying the historical performance of the S&#038;P 500, only 22% of the stocks in the S&#038;P 500 outperformed the index from 2000 to 2020. Over that measurement period, the S&#038;P 500 gained 322%, while the median stock rose by just 63%.
 Put simply, the probability of picking a winner is lower than you think, but all is not lost. A couple of big winners are all you need.
<h3>A few good decisions</h3>
Warren Buffett &#8211; arguably the most successful investor in history, recently attributed his success to just &#8216;a dozen truly good decisions&#8217;.
 &#8220;Over the years, I have made many mistakes &#8211; our satisfactory results have been the product of about a dozen truly good decisions &mdash; that would be about one every five years. &#8220;
 That&#8217;s right, the best investor in history made one good decision every five years.
 So how can someone who claims this be heralded as an investment guru?
<h3>Asymmetry</h3>
A stock can only drop by 100%, but there&#8217;s no technical limit to how high a stock can go, so when you invest in some truly great companies, the handful of winners can more than offset the graveyard of losses you accumulate along the way.
 Let&#8217;s take one of Buffet&#8217;s most notorious investments as an example;
 Over a period of seven years ending in 1994, Buffett accumulated 400 million shares of Coca-Cola at a total cost of &#36;1.3 billion. As of the end of 2022, that position was worth &#36;25 billion. And let&#8217;s not forget the &#36;704 million in annual dividends.
 For me, stocks like TTD and Nvidia have more than offset some very questionable investment decisions. (24-year-old me has a lot to answer for, but you live and learn, I guess).
 Obviously, the goal is only to pick winners, but on the off-chance you can&#8217;t perfectly predict the future, here&#8217;s a good place to start:
 1. Stop trying to jump on every opportunity. Focus on making a few good decisions and give them time to work in your favour.
 2. Don&#8217;t be fooled into thinking every investment will be a winner. You won&#8217;t stick it out very long if you expect to be in the green 24/7. There will be guaranteed losses along the way, but over time, a handful of big winners is all you need.
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A handful of winners

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