by James Woolley
It’s all too easy to become bogged down in the share-picking process. You can spend hours and hours looking for potential shares to invest in. My own view is that sometimes the best investment strategy is simply to pick a small basket of shares to invest in and then wait for good opportunities to buy these shares.

It all depends on what your own particular income goals are, but assuming you want to invest for the long-term, which you should always do when investing in shares, then it’s often best to select the very best companies on the stock exchange. So you would be looking at the biggest companies in terms of market capitalisation, but also those companies who have a long and sustained record of growth both in terms of dividends and overall profits.

These companies are the ones most likely to still be around and going strong in ten years time, and if they are, then their share price will obviously be substantially higher providing their profits growth continues and they remain at the forefront of their respective industries. These are the types of companies that will allow you to sleep easily at night because you don’t have to worry so much about profit warnings and financial difficulties. They are of course still possible, but they are unlikely to happen to a lot of these bigger well-established companies.

So now you have a shortlist of shares to invest in, it’s now a matter of timing. If you are investing for the very long-term, timing is not so much of an issue, but I always think you should still buy when these companies are showing temporary weakness. In the long-term these established growth companies will generally rise, but there will be plenty of peaks and troughs along the way, so it’s always a more profitable strategy to buy the troughs.

A more advanced strategy is to combine an investment strategy with a trading strategy in order to maximize your gains. For instance if you have a long-term holding and it has gone up a lot in a short period of time, then because you want to hold on to the shares, you could elect to take a short position in order to benefit from any pull-back that may occur in the short-term. This type of strategy is a form of hedging and it is an effective way of increasing your overall profits.

Anyway the point I wanted to make in this article is that sometimes it’s best simply to pick the very best companies on the stock exchange, which are often the largest companies, and then simply buy on any weakness and hold onto them for years and years.

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Article Source: Is It A Good Idea To Only Invest In A Small Basket Of Shares?