P/S/A: Seriously, get the hell out of individual stocks and into a broad market index. When you buy stock in BLAH at $30 because you think its undervalued, somebody else sold you that stock at $30 after making a deliberate decision that they would rather have your $30 than that stock. And that seller has enormous computers run by physicists and full-time market analysts. Thousands of other hedge funds decided *not* to buy that stock at $30, if they thought it was a good buy at $30 they would have kept buying it and bidding it up until it wasnt a $30 stock anymore. Oh, and you know everything you hear about those hedge-fund managers earning billion-dollar salaries? That money has to come from somewhere, and the place it comes from is your wallet when you think you know more about stock prices than the big players. Every time you buy an individual stock, you are taking a glove and trying to throw it high enough in the air to deliver a challenging slap in the face to a 40-foot hulking mass of muscle. You are thrusting out your chest and challenging people who do nothing but think about this one company all day long, and physicists and mathematicians and machine-learning experts with enormous computing clusters, saying, Ha ha, I think I know better than you lot how this stock should be priced, if you think youre so smart why dont you take my money? Lets fight! Well see who wins! And yes, Im sure you can tell me about that time you bought Net-Bet and it tripled in price within a year. Anyone who could do that reliably would earn 200% returns and, you know what, even hedge-fund managers cant do that with money, not with all the other hedge-fund managers competing against them, so *that one time was not skill*. Its like your friend telling you about that time they won $500 on a Lotto ticket by seeing a flight of 4 birds and understanding how 17 is the mystical number, while also modestly confessing that they realize there was an element of luck involved in the other numbers. Your friend does not have a physics-defying precognitive ability to select good lottery numbers, even though they earned $500 and this seems to them to have a connection with 17 being the mystical number. By an argument that is very nearly equally as strong, the doubling of Net-Bet has nothing to do with your ability to recognize a company with good management because *the person who sold you the stock at $30 also knew that* and other people who knew that *didnt* snap up the stock at $30. Seriously, get the hell out of individual stocks and into a broad market index. If you want less volatility, mix in a no-load broad bond index (bonds do have lower systematic returns than stocks because of excess demand by people who want less volatility) or *maybe* mix in some Berkshire Hathaway (a very large company, very unlikely to go bankrupt, which is something like a broad US index but with less volatility). And if you dont understand what the heck I just said, then put as much of your money as you dare to risk into a Vanguard broad stock index and walk away, but for heavens sake get the hell out of individual stocks.
Posted on: Sat, 06 Dec 2014 02:05:58 +0000
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