There is a system that made Nicolas Darvas rich in the 1950s. You may be thinking "that was then but this is now."
I am here to prove to you with my own savings that the basic system Darvas used at the middle of the last century works just as well today as it did then.
How Portfolio Concentration Has Blossomed Her Account
In January of 2008 my sister in law approached me for help. She had $ 25,000 in savings to invest.
I had her open a regular trading account at TDAmeritrade plus a Roth IRA. She placed $ 5,000 in the Roth and $ 20,000 in the regular trading account.
Today that money is worth $ 75,180.81.
This return came from shares of stock protected with simple stop-loss orders. The stop loss orders are adjusted every few months or so as the stock increases into critical price consolidations.
What is most important to understand is that the account has never been exposed to great risk. Stop loss orders have protected her portfolio.
It never takes more than 10 minutes a year for me to help her manage the account. Here is how I do it.
The Pesky One Stock Portfolio that Outperformed
I asked myself, "what is the best stock I know of in the market today?" After a few days of thinking I reached a conclusion.
Then I placed the entire $ 5,000 in that one stock. The stock rose and rose and rose even as others fell.
Sometimes it petered.
I rolled her out for a hefty gain. I have rolled her entitlement account through 4 fast rising stocks over the last 6 years.
Each time I put her in low before the analysts put on.
I am very much wealthier today from what I learned transforming $ 5,000 into $ 15,235.38 for my sister-in-law for a whopping 205% return.
The investment produced a return on account few people I know have seen over the last few years.
Let's face it. You hear marketers bragging about two hundred percent returns on a recommendation.
You never hear about a two hundred percent return on an entire account!
The reality is that business schools, investment advisors, investment newsletters, and investment marketers all drub diversification into the mind of the common Joe Main Street investor. They make diversification out to be a sort of life vest.
As long as they keep you diversified they know that they will earn the highest fees. They also know that they will not lose in NASD arbitration by treating you as a "prudent investor."
The prudent investor rule of breaking up your savings into a bunch of smaller stock investments keeps their commission protected from any arbitrator. And it forces your portfolio returns to the mediocre middle.
When Diversification Destroys
Finance professors from top schools have pointed out that diversification does not protect you from major market drops. Blind diversification creates investors who are apathetic to the very serious risk of major crashes.
Nonetheless solutions to evading major market drops are never seriously discussed in all of the noise and hype rifling through the market. Marketing magicians of Wall Street focus your attention in one direction (ham-fisted diversification) as if the other direction does not exist (intelligent concentration).