Novacyt (NCYT) has been the star performer on the London Stock Exchange in 2020 with a stunning return of over 10,000 per cent since the start of the year. This gives the stock the elusive and hard-to-earn badge of being a 100-bagger – something very few stocks in their lives achieve, let alone in one year. Yours truly was a shareholder in the 30s having sold for a scalp, and now I feel very silly indeed. It’s tempting to think of what could’ve been had I nailed my hands to the table and ignored the volatility that would’ve come with this stellar run.
But daydreams and reality are very different. Having such a weighting to a high-beta stock such as Novacyt – high-beta meaning it’s an instrument that moves more than the market, or beta – can increase an account’s return substantially, but this works both ways. A significant fall in price of the high-beta equity can mean a damaging drawdown on the trading account in both physical and psychological terms.
Eventually, the position would’ve become so big that the rest of the trading account wouldn’t have mattered, and the entire account’s performance would be hugely weighted to one equity. While you should certainly run your winners, giving one stock so much power over your total performance is something that should not be taken on lightly.