There are two mistakes investors can make – buying shares that underperform, or selling ones that go on to outperform. And I’m making plans to avoid both with my Stocks and Shares ISA.

This isn’t straightforward. But the new year is a good time to think about strategy and I’ve been figuring out how to give myself the best chance of maximising my returns over the long term.

Buy less

One I’m looking to do is limit the number of stocks I’m buying. Whenever I invest, I want to make sure I’m focusing on what I think are my best ideas.

No investment is guaranteed to work out. But 2024 has given investors a good idea of the effect an investment mistake can have on an overall portfolio’s returns. 

The S&P 500 climbed over 23% last year, with shares in Nvidia gaining more than 100% as GPU demand remained strong. But despite this, the tech sector as a whole actually underperformed the wider index.

This is because there were also some stocks that fared very badly in 2024. Most prominently, the Intel share price fell 60% as its products continued to underperform those of its rivals. 

The overall effect was that the S&P 500 tech sector gained less than 21%. In other words, despite the heroics of Nvidia and some other stocks, the sector as a whole underperformed the index.

My worst investments will dilute the effects of my best ones to some extent. But I think the easiest way of limiting this is by focusing on my best ideas to try and avoid potential disasters.

Sell less

Finding good ideas is only half of the battle. The rest is giving those ideas time to work out without selling them to invest the cash into something else.

A good example is Diploma (LSE:DPLM). I sold my investment in the company in May 2023 because I thought the share price had got expensive and that’s proved to be a mistake. 

The problem isn’t that the stock has gone higher. The issue is the company’s earnings have increased via organic growth as well as through acquisitions and it looks like this might well continue.

Diploma’s most recent update was good, but it wasn’t as impressive as it might have been. The industrial component distributor continues to grow, but not at the rate investors were expecting.

That means I might get a chance to buy the stock again if the next report comes in short of what the market is hoping for. And in that case, I’ll be looking to make sure I don’t make the same mistake again.

The markets Diploma sells into are highly cyclical and that brings the risk of an economic downturn stalling growth. But I see this as a high quality stock that I’d like to own for a long time.

Focus

There are two parts to my Stocks and Shares ISA plan for 2025. The first part involves working hard to find the best opportunities I can. 

The second involves not overthinking things when I’ve made a decision to buy. Being patient and letting quality businesses develop should help me get the best returns from whatever stocks I buy.