No one buys ASX shares with the intention of losing money.
Yet it is the harsh reality that many of your investments will end up doing just that.
It's inevitable regardless of your experience or knowledge. It's just what happens because no one in the world owns a working crystal ball.
But the great news is that with thorough research and diversification, a few — or even just one or two — massive winners can carry your entire portfolio into the black.
Let's examine one such small-cap example that's put a smile on many faces recently:
Image source: Getty Images
The ASX tech stock putting smiles on dials
DUG Technology Ltd (ASX: DUG) is a high-performance computing specialist in the technology sector.
Back just 20 months ago, in June 2022, the DUG share price hit the 40 cent mark.
Imagine that you were wise enough to buy $20,000 of the tech stock then.
DUG Technology, ever since listing on the ASX in August 2020, has consistently grown its revenue, operating margin and net profit since.
Combine this with a general revival in high-growth tech stocks in 2023, and you have yourself a prodigious winner.
That $20,000 would have now turned into $124,500.
This is why you don't need every stock to be a winner
So to what extent could such an explosive stock wipe out the effects of other stocks in your portfolio that haven't done as well?
Let's go back to June 2022.
At the time you were buying DUG shares, let's say you also bought up four other stocks for $20,000 each in order to construct a diversified portfolio.
As I mentioned earlier, no one buys stocks thinking they will sink.
You bought all five companies because you deemed them to be quality businesses with bullish prospects.
However, let's assume the other four picks other than DUG Technology flopped.
Take it to the extreme and say they're now all worth $0.
Even then, thanks to DUG shares, your portfolio is now 30% up.
There's the power of diversification, and a lesson that not every stock pick has to be a winner for you to build your wealth.
