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Yes, buying stocks is not for everyone. But I think the little guy has some advantages, if one chooses to not invest the same way that pros do. I do think that trying to react to the daily news is not a good idea. The best advantage IMO is being able to take a really long-term perspective.
The "really long-term perspective" is actually the worst for individual stocks. All of the "hot" stocks of today will inevitably lose most of their current value in the long term. And they will never return to their historical highs. We know this will happen because this pattern has repeated throughout history.
That is where an index fund has the greatest advantage over individual stocks. They continue to go higher over the long term even after the worst market declines.
I would encourage anyone who is interested to not let this line of reasoning discourage them. Professional money managers have requirements and restrictions that do not impact small individual investors. Fund managers have prospectus limitations that can prohibit them from buying certain stocks, too much of a particular stock, etc. Shareholders and their own managements expect to see performance on a regular basis, which can sometimes force them into buying securities that are not good long-term buys. Investment committees putting every holding under a microscope and demanding the data to back up every portfolio decision. Finally, managing huge amounts of money puts practical limits on their portfolio. They cannot buy a significant position in smaller companies, and even with larger companies it can take weeks to build or divest a position.
Yes, buying stocks is not for everyone. But I think the little guy has some advantages, if one chooses to not invest the same way that pros do. I do think that trying to react to the daily news is not a good idea. The best advantage IMO is being able to take a really long-term perspective.
Yes, I agree with this. But in practice, the little guy doesn't do well. The little guy typically underperforms the index funds he invests in because of poor timing decisions, and those poor decisions are just magnified with individual stocks.
The "really long-term perspective" is actually the worst for individual stocks. All of the "hot" stocks of today will inevitably lose most of their current value in the long term. And they will never return to their historical highs. We know this will happen because this pattern has repeated throughout history.
That is where an index fund has the greatest advantage over individual stocks. They continue to go higher over the long term even after the worst declines.
You do not have to own "hot" stocks to get a good return.
Indexes do not always recover in a timely manner, by the way. If you have 30 or 50 years to wait then sure you are probably fine. But our own market has gone through a few periods of 15+ years with pathetic returns, and Japanese investors are still waiting for a Nikkei recovery... 30 years have passed and it's still way below the old high.
Yes, I agree with this. But in practice, the little guy doesn't do well. The little guy typically underperforms the index funds he invests in because of poor timing decisions, and those poor decisions are just magnified with individual stocks.
That's certainly true. Bad behavior can have a much bigger negative outcome. Conversely, however, good behavior can have a positive outcome. I've come to believe that a lot of investing boils down to psychology... greed, fear, good behavior, bad behavior. Learning to control one's own emotions, and also recognize the madness of crowds, is important.
I would encourage anyone who is interested to not let this line of reasoning discourage them. Professional money managers have requirements and restrictions that do not impact small individual investors. Fund managers have prospectus limitations that can prohibit them from buying certain stocks, too much of a particular stock, etc. Shareholders and their own managements expect to see performance on a regular basis, which can sometimes force them into buying securities that are not good long-term buys. Investment committees putting every holding under a microscope and demanding the data to back up every portfolio decision. Finally, managing huge amounts of money puts practical limits on their portfolio. They cannot buy a significant position in smaller companies, and even with larger companies it can take weeks to build or divest a position.
Yes, buying stocks is not for everyone. But I think the little guy has some advantages, if one chooses to not invest the same way that pros do. I do think that trying to react to the daily news is not a good idea. The best advantage IMO is being able to take a really long-term perspective.
You make a lot of good points and I do agree the smaller investor can be more nimble. I would still say however that most people are either too emotional and/or don't understand markets enough to make it a good idea. I think if someone isn't going to invest a serious amount of time in understanding markets period as well as investigating individual stocks I think they should seriously consider indexing instead.
It amazes me how many people I see on reddit or here or other forums basically willing to throw their money at anything mentioned by someone else they see as more experienced and that's pretty scare. If you don't understand it yourself don't invest.
You make a lot of good points and I do agree the smaller investor can be more nimble. I would still say however that most people are either too emotional and/or don't understand markets enough to make it a good idea. I think if someone isn't going to invest a serious amount of time in understanding markets period as well as investigating individual stocks I think they should seriously consider indexing instead.
For myself it's not so much about being nimble, but rather having the freedom to think in terms of longer timeframes than most investors. As I mentioned before, the pros are under pressure to perform in a timeframe that's acceptable to their clients and management, and this can lead to some poor decisions IMO.
One can certainly do a lot worse than indexing, but I think people put too much confidence in it. As I mentioned previously, there have been some long periods of time during which index returns were awful. When I first started learning about investing I made this observation, and decided to look for an approach that was more consistent. I did not want to go through those long droughts if there was some other approach that works.
Of course one should not buy stocks on a whim, because their neighbor bragged about doubling their money with it, because Cramer mentioned it on television, etc. Quite often I run across people who have sworn off stocks because of a bad experience. Usually they won't mention any specific names, but when they do it's typically something that's (1) really speculative, and (2) not a company they would be likely to understand (nor would I, for that matter) no matter how much they studied.
Well, this "idiot" has done pretty well, thank you very much. I may be different than most in that I'm not trying to get rich, I'm just trying to protect and grow what I've earned. All of my money was in CDs when the market crashed in 2008, so I didn't lose any of it. Around 2011 all of the 5 1/2% CDs had rolled out and I was simply looking for a way to replace that 5 1/2%. I invested in a group of about 15 high quality dividend stocks which have an average dividend of 5-6% and they've been paying me nicely for the past 6 years. They are not very volatile, so I don't spend much time checking on them. While collecting the dividends, my Altria has almost tripled, my Verizon has almost doubled and I have gains in 12 of the others with only 1 loser (which still pays the dividend, but has dropped in price). I think if I were trying to "beat the market", you would be right to call me an idiot, but I'm not trying to do that. I know I'm not smart enough to pick the next Amazon, but I also know that the world could be exploding and people will still be smoking, blowing their nose, washing their clothes and using their cell phones. Works for me.
To those who do better than the S&P 500 index year after year in your own stock picking, why don't you open a mutual fund? If you can do better than 90% of the mutual fund managers of mutual funds who don't beat the index, with all their expertise and resources, you are in the wrong line of work.
being a fund manager is very different . you are bound by the funds objectives and bylaws . you can't go everywhere and buy whatever you like . a side from buying what meets the funds objectives you have other issues .
you are very limited to what you can even buy as you have to invest enough to make a difference but not enough to break sec rules about owning to much of a company .
i do a lot of sector trading with etf's and have a very good track record but even so i have few losers in individual stocks . i just don't commit as much to individual stocks as i do sector plays . i have posted my trading statement a few times here and i just buy and sell following a steep drop in a good area .
if gold tanks after the fed meeting GLD is on the radar for a quick trade .
my main investing is funds but i enjoy the trading .. coming up on 73k in profits since january darting in and out not counting the gains on my funds .
bought uso (oil) the other day on the plunge and sold it yesterday morning already .
Last edited by mathjak107; 06-13-2017 at 07:29 AM..
The "really long-term perspective" is actually the worst for individual stocks. All of the "hot" stocks of today will inevitably lose most of their current value in the long term. And they will never return to their historical highs. We know this will happen because this pattern has repeated throughout history.
That is where an index fund has the greatest advantage over individual stocks. They continue to go higher over the long term even after the worst market declines.
exactly!!!
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