Q&A: Another Stock?

Q:

I am interested in investing in individual stocks for the long term - do you still give this advice? Years ago (20+ yrs) I will never forget the advice you gave on the 'old' Don McDonald Show - you recommended to buy Amazon! And needless to say you were right. I would like more of these 'dead-on' stock pics!

A:

Ah, those were the days. Young, foolish, and impressionable. I believed the “sage” wisdom of stock pickers like Peter Lynch (and many others). Do your research, buy good companies, and let them grow. However, I discovered a dark side to stock picking; losing!

While I got lucky with stocks like Amazon and Apple, I do recall a few stock suggestions that didn’t do nearly as well. A few even went “belly-up.” The pleasant memories of winning lingers far longer than the pain of losing. But, it only takes a few well-researched mistakes to destroy a portfolio.

Trying to pick a few big winners is too similar to gambling for my aging sensibilities, so I don’t even try. Nor do I recommend anyone else do so, unless they are wagering Vegas-style gambling capital. 

Even those who were much better stock pickers than I have seen the light. Even one of the most successful stock pickers of all time, Peter Lynch now says that most investors are “better off in an index fund.”

Even Jim Cramer, who makes his living suggesting stocks on an almost daily basis said “After a lifetime of picking stocks, I have to admit that Bogle’s (Jack Bogle, founder of Vanguard) arguments in favor of the index fund have me thinking of joining him rather than trying to beat him.”

Like any form of gambling, picking stocks can be fun (maybe even occasionally profitable) and incredibly dangerous.