Personal Development for Smart People Forums - View Single Post - Investments: Professional vs. Self Management

ahimel · 01-12-2007, 04:53 PM

Dave:

Why do you pick your own stocks? Do you enjoy it? Which part of it do you enjoy? Is it the thrill of the risk, the joy of putting your money into an unknown future? Is it the ability to go to parties, and casually mention a few stocks you happen to be holding? Is it the hours of research just to find a few stocks worth further study, and then the hours of research to find which of those are really worthwhile, and then the hours of research for each company to determine which ones you should invest in, only to find that the answer is sometimes, "None of the above." ?

Or do you detest investment-picking, and wish it would all just go away?

The benefits of stock-management are a myth propegated by investment advisors and mutual fund managers. The truth is that monkeys throwing darts at the Wall Street Journal do as well or better than 75% of money managers out there. And (I'm sorry to say) the monkey-dart method probably also does better than you do.

The stock market does go up. If you bought one share of every stock on the NYSE, and held that for 10 years, the value of your portfolio would go up, even though a lot of the stock you held would be completely worthless; the companies that do well make up the loss. And of course it would be better to just buy the companies that will do well, and not buy the ones that will be bankrupt in 10 years. But the odds of you doing that successfully are... slim.

It's easier and safer to just buy an unmanaged index fund (which essentially allows you to buy one share of every stock in whatever index you select) and ignore it for 10 years. Check this post for more information on the benefits of index funds.

If you happen to like picking stocks, by all means go for it. Especially if you enjoy the necessary time and research to be an educated an knowledgable investor, you may make quite a bit of money. But just in case... pick stocks with a little money on the side, that you can afford to lose if your picks are really bad. Put the important money -- your IRAs and 529s -- into diversified funds, or into a self-managed investment that you can control, like real estate.

01-12-2007, 04:53 PM	#5 (permalink)
ahimel Senior Member Join Date: Nov 2006 Location: Boulder, Colorado Posts: 398	Dave: Why do you pick your own stocks? Do you enjoy it? Which part of it do you enjoy? Is it the thrill of the risk, the joy of putting your money into an unknown future? Is it the ability to go to parties, and casually mention a few stocks you happen to be holding? Is it the hours of research just to find a few stocks worth further study, and then the hours of research to find which of those are really worthwhile, and then the hours of research for each company to determine which ones you should invest in, only to find that the answer is sometimes, "None of the above." ? Or do you detest investment-picking, and wish it would all just go away? The benefits of stock-management are a myth propegated by investment advisors and mutual fund managers. The truth is that monkeys throwing darts at the Wall Street Journal do as well or better than 75% of money managers out there. And (I'm sorry to say) the monkey-dart method probably also does better than you do. The stock market does go up. If you bought one share of every stock on the NYSE, and held that for 10 years, the value of your portfolio would go up, even though a lot of the stock you held would be completely worthless; the companies that do well make up the loss. And of course it would be better to just buy the companies that will do well, and not buy the ones that will be bankrupt in 10 years. But the odds of you doing that successfully are... slim. It's easier and safer to just buy an unmanaged index fund (which essentially allows you to buy one share of every stock in whatever index you select) and ignore it for 10 years. Check this post for more information on the benefits of index funds. If you happen to like picking stocks, by all means go for it. Especially if you enjoy the necessary time and research to be an educated an knowledgable investor, you may make quite a bit of money. But just in case... pick stocks with a little money on the side, that you can afford to lose if your picks are really bad. Put the important money -- your IRAs and 529s -- into diversified funds, or into a self-managed investment that you can control, like real estate.