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Is it wise for everyday investors to buy individual stocks?

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Purple Rain
Purple Rain
3 months ago

I make one decison – when to buy a stock. This is primarily based on quality and valuation. I never sell so that part does not matter. If I consider an index fund fairly valued I’ll buy it but that has not been the case in a while.

Philip Stein
Philip Stein
1 month ago
Reply to  Purple Rain

I’m confused by your claim that you never sell a stock. Do you really believe that your stock picks will never falter or become overvalued?

I can understand never selling a broad-based index fund since it will self-adjust to changes in the market, but an individual stock?

Purple Rain
Purple Rain
1 month ago
Reply to  Philip Stein

The fund that has not changed positions since 1935 is doing quite well.

https://www.morningstar.com/articles/960641/the-strange-and-happy-tale-of-voya-corporate-leaders-trust

I happen to believe that a portfolio is like a bar of soap and must be handled minimally. If one of my holdings becomes overvalued or goes bankrupt, so be it. I have a portfolio that is very diverse.

Last edited 1 month ago by Purple Rain
Richard Gore
Richard Gore
3 months ago

Generally no; however, I enjoy the process of researching individual companies and it is important for me to know exactly what I own. Perhaps it is illogical, but I don’t trust the market as whole to be fairly valued.

Edwin Belen
Edwin Belen
5 months ago

I think it’s a personal question. My issue with owing stocks are when to sell, which I’ve never figured out so mutual funds for me.

R Quinn
R Quinn
7 months ago

Generally no. Mutual funds, especially index funds are what most average investors (or more accurately savers) should stick with.

Purple Rain
Purple Rain
7 months ago

Absolutely. I had a lump sum to invest in 2018 and did not want to buy index funds in a very overpriced market. I started buying fairly valued companies with long histories of growing their dividends. I have now built a reliable and growing dividend stream. During the crash in March 2020, I bought some more, increasing my yield on cost.

My retirement funds still have indices, but I don’t ever plan to sell my individual stocks. The stock market is a market of stocks and there are always some excellent companies on sale.

Bob Wilmes
Bob Wilmes
7 months ago

Most people will have satisfactory returns investing in a few well diversified index funds. It is possible, if you do your research, to find two or three individual stocks on a yearly basis that have very compelling value stories. These are the stocks that can double, triple or even return 10x on capital over a few years. Not every stock has this potential but a few do. Just last year, the XLE oil index ETF sold in the $20 range and recently recovered to the $58 range, for example. It sometimes pays handsomely using value investing techniques. Peter Lynch’s book One Up on Wall Street has dozens of stories on stock picking that will help you learn.

John M
John M
7 months ago

Investors as a whole are not compensated for the risk they take when buying individual stocks. The risk/reward tradeoff of a low-cost market index fund is far superior.

David Powell
David Powell
7 months ago

Nope. Why own just a few when you can so easily buy your share of the earnings of many companies?

A cheap, broad stock index fund + lazy compounding + time = wealth.

William Ehart
William Ehart
7 months ago

No, in general. Since a handful of stocks drive index returns, by definition the odds are against you as you pick a few stocks to buy. We don’t know what tomorrow’s winners are, but we know they will be a tiny minority of the stocks available to buy.

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