Why It’s Best to Ignore Individual Stocks

Prefer to listen rather than read? Pair this post with   Deliberate Money Moves Podcast: Why it’s Best to Ignore Individual Stocks.

Buying an individual stock is like placing your money on a single number in roulette, but much, much worse.

In the United States, there are hundreds of large investment firms trying to pick the best stocks. Within these firms are talented, educated and well-connected analysts whose sole responsibility is to know whether to buy or sell 5-10 individual stocks.

How these Analysts Work:

1. They cover the same 5-10 stocks throughout their entire career.
2. They listen to all the firm’s conference calls.
3. They pour over all the firm’s technical and legal information releases.
4. They attend expensive conferences and gain access to other people who are knowledgeable and connected directly to the companies they analyze.

And it all comes down to a recommendation to buy or sell.

Salesmen vs. True Experts

These are not the analysts that issue public reports (which nearly always say buy). No, those analysts are more like salesmen trying to get you to execute a transaction so their firm will earn a commission.

I’m talking about the true experts who live and breathe Apple and perhaps five other similar companies. These analysts give their recommendations to their in-house portfolio managers who then place the trades. At no time do any of these analysts make their opinions public. You can’t get them because they earn too much money keeping their opinions private.

Rigged Against You

The individual stock game is rigged against you because you don’t have the time, expertise, connections, or desire to compete with these obscenely paid professionals.

But the good news is, at the end of the day, investment firm performance has never been shown to be more valuable than index performance over time.

Why do you think you can beat them at this game? They don’t even beat each other!

Now, I’m not saying you can’t own any individual stocks. I understand the attraction to buying and selling stocks. Just don’t ever let that be part of your lifelong Financial Plan.

So, what do you think? Do you own individual stocks? Do you view them as “investments” or “bets”? How do they fit into your Financial Plan?

To share your comments, send me a direct email at joe@bestfinlife.com.

Or if you’re ready to have a conversation about improving your financial life, schedule a complimentary virtual conversation here.