Even though you buy every ASX stock full of hope, the harsh reality is that not every investment will make you money.
In fact, one must mentally prepare for the inevitability that some stocks will lose you money.
This is not defeatist or alarmist. It's the truth.
But there is good news.
It's that if you diversify your portfolio competently, there might be a few winners that can balance out the losers.
Those winners can sometimes go further than merely cancel out the losses. They could carry the portfolio to huge gains.
I've spoken to many professional investors over the years, and even they all admit they don't achieve anywhere near a 100% success rate.
Fund managers would happily accept 6 of their 10 stock picks returning a profit.
So with this in mind, let's take a look at an example of a huge winner that's had the heft to carry many losers:
Revenue coming in, R&D continuing
Back on 3 December 2021, Neuren Pharmaceuticals Ltd (ASX: NEU) shares closed the day at $1.77.
Let's say you bought $20,000 of the healthcare stock on that day.
Since then the company has gone from strength to strength.
First it was the commercial release of its Daybue product, which is still the only approved therapy in the world for Rett Syndrome.
A licensing agreement with Acadia Pharmaceuticals Inc (NASDAQ: ACAD) allows the US giant to manufacture Daybue, in return for royalties paid to Neuren.
So that created a flow of cash coming in for the Australian outfit to work on other drugs.
In the past year, favourable testing and regulatory developments for its NNZ-2591 product has sent the stock price soaring.
In fact, Neuren Pharmaceuticals ended up as the best performer on the S&P/ASX 200 Index (ASX: XJO) in 2023.
How one healthcare stock could cure the ailments of others
Now, back to that $20,000 you invested just over two years ago.
That's now worth a cool $257,062.
Showing you such an example isn't meant to send you scrambling to speculate on overnight winners.
The lesson you should be getting out of this is that a few winners in your portfolio will absolutely obliterate the losses.
On 3 December 2021, no one knew how Neuren shares would have turned out in 2024.
So imagine that, in order to diversify your risk, you also bought nine other stocks for $20,000 each.
Incredibly, in an absolute disaster, those other stocks all sank to $0.
Guess what? Your portfolio is still 29% up.
By the way, even now all five analysts surveyed on CMC Invest rate Neuren shares as a buy.
