A lot of people like individual stocks
Why should I invest in index funds when I can get so much more by buying individual stocks?
How about if I only buy the winners and don’t buy the losers?
The case for index investing
The truth is that we don’t know. Every day, thousands of smart full-time investors go to their computer to try to find out those gems which will do better than the market and most of them fail. In my article Active Managed Funds Under Perform the Index (Again), we see how year after year about 80% of professional mutual fund managers underperform the index. Those smart persons with MBAs and CFA cannot create a portfolio that will outperform the index.
In this other article by Investopedia, it is reported that on average, hedge funds had a return of less than half of the S&P 500 for the year 2017. And in case you didn’t know, the hedge fund industry made a $1,000,000 bet against Warren Buffett, whereas the hedge fund industry claimed they could beat the s&P 500 in a time period of 10 years. Guest who lost?
So picking out the next winner is quite hard. The other part of the equations is that avoiding big losers is just as hard. Who remembers Enron, Kodak, Blockbuster, Blackberry? the list goes on and on. One day they were big winners and the next day they were not.
Investing in index funds is investing in capitalism
When we pick the index, we don’t pick the winners and avoid the losers. You pick all of the stock in an asset class. We depend on the spirit of capitalism. We depend on the idea that every man and woman will do their best to make their companies succeed and those who fail will be kicked out of the index. The index will do the stock-picking for you. If the stocks meet the index criteria, they are in. If the stocks don’t meet the index criteria, they are out. All you have to do is to contribute regularly to your investment account and watch your money grow.
Don’t waste your time and energy
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- Active Managed Funds Under Perform the Index (Again)
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Comments
2 responses to “Picking individual stocks is the fastest way to go broke”
Mt Guillot. Your book here link, is not redirecting us properly. It is actually redirecting us to a scam phishing. If you don’t mind to explain that 1st & we see if we keep going. Thank you.
Thank you for pointing this out. I was unaware of it. I will replace all those links in my other posts.