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Don't take this advice unless you want massively subpar returns. The idea that picking individual companies is "gambling" is quite frankly ridiculous. The infor

Don't take this advice unless you want massively subpar returns. The idea that picking individual companies is "gambling" is quite frankly ridiculous. The information around NVidia being a great company has been around for years and years and was obvious to anyone who took a look at the company performance. The same is true for companies like Netflix or Shopify. I invested in all three of the these companies for the first time in around 2013 and 2014, why? Because I did my research and due diligence and could see they were incredibly well run, operating in areas with lots of room for growth. If I had just invested in index funds I would much, much less money than I do now. If you're reading this comment and you're younger than 60, do not take this advice. Your risk tolerance should be higher when you're younger and buying good companies at good prices is not gambling, it's what Warren Buffet always did, and it's the best way to grow your net worth.

__loam 3y ago
A lot of shit can happen to individual companies that is unanticipated or unlucky. For example, Boeing had been a pillar of American engineering for a long time. We had no reason to doubt that the producer of one of the most prolific and reliable jet liners would ever have any issues, but then it did. The facts are that it is incredibly hard to predict the trajectory of individual companies even with insider information. The hedge against acts of God is diversification, and the best way to do that is index funds. Frankly your advice of do your own research and only invest in "good" companies is incredibly irresponsible advice. That you survived and did well is not proof that your strategy is good, just that you in particular are lucky. The most reliable way to grow and preserve wealth is diversity.
- saberience 3y ago
  Well I guess I've been lucky for ten years in a row then. Maybe you should tell Warren Buffet he got lucky too. Doing research and investing based on it isn't being lucky. It's called being prepared. Rolling a dice and picking stocks and then making money IS being lucky. If you massively diversify you are just going to get whatever the market gets and no alpha. If you are close to retirement, this makes sense. But for young people, generally your risk tolerance is higher and you have more time too. Here it makes sense to learn about companies, research, do your due diligence, and invest in individual companies.
FredPret 3y ago
This can work out so great if you do it well. In the legendary books Securities Analysis and The Intelligent Investor they recommend this approach if you are serious about researching and they also recommend diversifying into a variety of stocks - certainly more than 3. Personally I like your approach much more and it’s why I’m building https://ultimatestockpicker.com https://ultimatestockpicker.com. I feel like there’s a ton of money rushing into the SP500 and it’s juicing the valuations far too high while there are great companies out there trading at a PE of 5-10.
- system2 3y ago
  Thank you for your insights.
- __loam 3y ago
  And the easiest way to diversify is to buy index funds. In the long run you do far less work and you probably beat people picking stocks and trying to compete with extremely well resourced finance firms. The comment above you is a great example of survivorship bias. He picked well. That is rare.
  - gen220 3y ago
    FWIW, you can compete in arenas where extremely well resourced finance firms literally don't allocate people. The return on an obligated <5% ownership stake in a <$10Bn company isn't worth the attention of said firms, but is nice if your AUM is <$100mm (i.e. most individuals and approximately zero well-resourced finance firms). I'm not saying it's the best thing to do: it's an allocation of time and energy that you could put towards literally anything else. Basically, it requires ongoing education and discipline, as most worthwhile things do. But it's a valid financial choice and the circumstances for success are less rare than you give it credit for. It's a bit like concluding that it's not worth working for a startup because 90% of "startups" "fail", or whatever the quoted statistic is these days. The published and oft-discussed maps are not a complete representation of the actual territory – there's a lot of nuance in there.

__loam 3y ago

A lot of shit can happen to individual companies that is unanticipated or unlucky. For example, Boeing had been a pillar of American engineering for a long time. We had no reason to doubt that the producer of one of the most prolific and reliable jet liners would ever have any issues, but then it did. The facts are that it is incredibly hard to predict the trajectory of individual companies even with insider information. The hedge against acts of God is diversification, and the best way to do that is index funds. Frankly your advice of do your own research and only invest in "good" companies is incredibly irresponsible advice. That you survived and did well is not proof that your strategy is good, just that you in particular are lucky. The most reliable way to grow and preserve wealth is diversity.

saberience 3y ago
Well I guess I've been lucky for ten years in a row then. Maybe you should tell Warren Buffet he got lucky too. Doing research and investing based on it isn't being lucky. It's called being prepared. Rolling a dice and picking stocks and then making money IS being lucky. If you massively diversify you are just going to get whatever the market gets and no alpha. If you are close to retirement, this makes sense. But for young people, generally your risk tolerance is higher and you have more time too. Here it makes sense to learn about companies, research, do your due diligence, and invest in individual companies.

FredPret 3y ago

This can work out so great if you do it well. In the legendary books Securities Analysis and The Intelligent Investor they recommend this approach if you are serious about researching and they also recommend diversifying into a variety of stocks - certainly more than 3. Personally I like your approach much more and it’s why I’m building https://ultimatestockpicker.com https://ultimatestockpicker.com. I feel like there’s a ton of money rushing into the SP500 and it’s juicing the valuations far too high while there are great companies out there trading at a PE of 5-10.

system2 3y ago
Thank you for your insights.
__loam 3y ago
And the easiest way to diversify is to buy index funds. In the long run you do far less work and you probably beat people picking stocks and trying to compete with extremely well resourced finance firms. The comment above you is a great example of survivorship bias. He picked well. That is rare.
- gen220 3y ago
  FWIW, you can compete in arenas where extremely well resourced finance firms literally don't allocate people. The return on an obligated <5% ownership stake in a <$10Bn company isn't worth the attention of said firms, but is nice if your AUM is <$100mm (i.e. most individuals and approximately zero well-resourced finance firms). I'm not saying it's the best thing to do: it's an allocation of time and energy that you could put towards literally anything else. Basically, it requires ongoing education and discipline, as most worthwhile things do. But it's a valid financial choice and the circumstances for success are less rare than you give it credit for. It's a bit like concluding that it's not worth working for a startup because 90% of "startups" "fail", or whatever the quoted statistic is these days. The published and oft-discussed maps are not a complete representation of the actual territory – there's a lot of nuance in there.