If I Could Only Buy and Hold a Single Stock, This Would Be It

We all know the phrase, "don't put all your eggs in one basket."

That's because it's a simple way to express an abstract idea: Too much concentrated risk can lead to disaster.

Nowhere is this more true than in the world of investing. It's why countless finance gurus have sung the praises of diversified portfolios. By spreading your bets among many stocks, the risk of one bad selection wrecking your life savings is greatly reduced.

However, what if you had to choose only one stock to buy and hold?

Obviously, that's not an ideal strategy, but in this hypothetical scenario, I know what stock I would choose: Amazon (NASDAQ: AMZN). Here's why.

Image source: Getty Images.

How owning Amazon (partially) solves the diversification problem

To start, we need to consider the greatest challenge in this scenario: the lack of diversification. By owning only a single stock, our hypothetical investor has put all their eggs in one basket -- and so that basket needs some safety features.

Thankfully, Amazon has them. The company is a conglomerate. It combines e-commerce, cloud services, advertising, and artificial intelligence to generate its massive $600 billion-a-year revenue stream.

Moreover, these segments serve different customers and are driven by different economic trends. For example, the company's cloud services division, Amazon Web Services (AWS), derives significant revenue from large enterprise clients like Netflix, Adobe, and Meta Platforms. On the other hand, Amazon's e-commerce segment caters to retail customers through its 200 million-plus Prime members, who rely on the service for quick delivery of everyday items.

Granted, both segments rely on a healthy overall economy to drive top-line growth and profits, but at least Amazon stockholders are not reliant on just business spending -- or consumer spending. There's a blend of both behind Amazon's massive revenue stream.

A long history of outperformance and excellent management

Next, there's Amazon's history and its management. Taking its stock performance first, there are few companies that can match Amazon's long-term growth. Over the last 20 years, Amazon generated a compound annual growth rate (CAGR) of 26.9%. That's more than double the return of the S&P 500 over the same period (10.8%).

AMZN Total Return Level data by YCharts

While the stock's past performance is no guarantee of the its ability to outperform over the next 20 years, it is a sign that the company's management navigated numerous challenges while finding opportunities to expand its product offerings and grow its value proposition to customers. After all, let's remember that Amazon began as an online bookstore and now generates roughly $50 billion per year in revenue from advertising alone.

Finally, one key reason that Amazon survived and thrived even as its core businessevolved is that its leadership has been excellent. Starting with founder Jeff Bezos, Amazon always embraced a culture of change. That's how the company's initially modest web services division (AWS) blossomed into the leading cloud services provider in the world, with over $100 billion in annual revenue. Similarly, current CEO Andy Jassy will be vital in transforming Amazon over the next decade (or longer) as the company continues to grow its newest and most lucrative segments, like its AI initiatives and robotics.

In short, Amazon gives investors a little bit of everything. And if I had to own only one stock, that's why I would be happy to own Amazon.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $350,915!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,492!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $473,142!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 25, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jake Lerch has positions in Adobe and Amazon. The Motley Fool has positions in and recommends Adobe, Amazon, Meta Platforms, and Netflix. The Motley Fool has a disclosure policy.