In the late 90’s, I engaged in the irrational exuberance that was the technology stock market bubble and went to the cleaners for it. I invested heavily in companies I’ve never heard of in business models that didn’t make sense because everyone was making a killing on the market.
Since then, I’ve taken a more “rational” approach to investing. In the mid-2000’s, I was back in the stock market investing in solid companies, with clean balance sheets, and room for growth. I did reasonably well, but I spent a lot of time to research and study each company. Though I did well, I didn’t beat the market consistently over time.
And that’s why I don’t invest in individual stocks anymore. No matter what people will tell you, and no matter how many success stories you hear about a friend who invested in Starbucks before it got big, no average investor can sustain that track record over time. Ask them about their losses, and you will get a clearer picture of how they’re doing.
If you are a serious investor in stocks, you spend time on research, you feel emotionally invested in companies, and depending on your broker, you pay transaction fees constantly. In the grand scheme of things, I don’t know anyone who has made a killing on individual stocks. I know this because all of my friends are still working.
It is also extremely rare that you will find someone who has beaten the market through investing in individual stocks, when compared to the number of people who actually invest in stocks.
This is why I invest in mutual funds and exchange traded funds. They are managed by professionals whose sole job AND objective is increasing shareholder wealth. You can mitigate risk by investing in mutual funds/ETFs, and you have the ability to invest in a specific sector.
You have several options in terms of value versus growth, small cap versus large cap, etc. Like Ron Pompeil said, you can set it and forget it (to a certain degree). I’d much rather take the time I spent researching stocks and putting that towards spending time with my family, or investing that time on my job to exceed expectations. Much like I hire an electrician, I’d much rather hire a mutual fund manager to manage my money.
Do any of you have success with buying and selling individual stocks?