Investing in Individual Stocks? Here’s What You’re Up Against
Buying an individual stock is like placing your money on a single number in roulette, but much, much worse.
The Competition
In the United States, many large investment firms try to pick the best stocks. These firms have skilled, educated, and connected analysts. Their main job is to decide if they should buy or sell 5 to 10 specific stocks.
How Analysts Work
These analysts focus on a small number of stocks throughout their careers. Here is how they operate:
- They cover the same 5 to 10 stocks for their entire careers.
- They listen to all the firm’s conference calls.
- They pore over the firm’s technical and legal information releases.
- They attend expensive conferences to connect with knowledgeable individuals tied to the companies they analyze.
In the end, their work leads to a recommendation to buy or sell.
Salesmen vs. True Experts
The analysts who issue public reports usually recommend a “buy.” These analysts act more like salespeople. Their goal is to get you to make a transaction so their firm can earn a commission.
I’m talking about true experts who focus deeply on companies like Apple and a few others. They share their recommendations with in-house portfolio managers, who then place the trades. These analysts do not make their opinions public. They keep their insights private because they earn a lot of money doing so.
Rigged Against You
The stock game is stacked against you. You lack the time, skills, and connections to compete. Plus, these professionals are often paid too much.
The Good News
Over time, investment firms have never outperformed index funds.
Why do you think you can beat them at this game? They don’t even beat each other!
Final Thoughts
Now, I’m not saying you can’t own any individual stocks. I understand the attraction to buying and selling them. Just don’t let that be part of your lifelong Financial Plan.
What Do You Think?
betDo you own individual stocks? Do you view them as “investments” or “bets”? How do they fit into your Financial Plan?