Stocks and Shares

Woolverhampton_Blue · January 15, 2021

evilwebby said:
I don't necessarily agree that individual stock selection is gambing, but it does require you to do your own research, something that is well beyond the capacity of the most people. I personally am quite comfortable having 20% of my portfolio in individually selected FTSE stocks. However I can't stress enough the importance of doing your own due dilligence on individual stocks.

But please do not buy ANY stock on recommendations from a random poster on an internet forum, no matter how genuine you think they are or how convincing they sound. Their worldview and therefore reasons for owning the stock may be completely different to your own.

And if you are starting you probably shouldn't be buying individual securities at all and sticking to either managed funds or index trackers.

Stocks ARE gambling if all you are doing is following tips and hearsay without rhyme or reason or understanding why you hold it. But they are also the worst type of gambling - one where the gambler is deluded into thinking that they are investing.

People who have respect for the stock market and money understand that investing is mostly very boring, mundane and slow process, whereas people who lack these qualities view it as a way to make money quickly usually end up giving back all their gains and worse.

Individual stocks definitely are a gamble. Doesn’t matter how much due diligence you do, they’re still a risk. It all comes down to your personal attitude towards risk and reward.

Personally I’ve put all of my pension fund into equities but I’d never dream of trying to pick the individual companies myself. Investing is similar to gambling in that you’ll often hear people talking about the time they made 10% plus in a year from some company but you rarely hear anyone owning up to losing a few grand (which happens to most people who consistently invest large sums in individual securities).

evilwebby · January 16, 2021

Woolverhampton_Blue said:
Individual stocks definitely are a gamble. Doesn’t matter how much due diligence you do, they’re still a risk. It all comes down to your personal attitude towards risk and reward.

Personally I’ve put all of my pension fund into equities but I’d never dream of trying to pick the individual companies myself. Investing is similar to gambling in that you’ll often hear people talking about the time they made 10% plus in a year from some company but you rarely hear anyone owning up to losing a few grand (which happens to most people who consistently invest large sums in individual securities).

Reasonable minds can disagree on this.

I agree that some many stocks are very risky and border on gambling, but there is a big difference between buying smallcap bio stocks that have no earnings and burning through cash each year, and buying well established bluechip companies which have a long track record through several market cycles.

The index argument is a pretty good one, but it is one that is driven by a particular narrative that has become prevalent in recent years, which is that most gains are driven by tiny tail end events. This is milk and honey for those who strongly believe in American Exceptionalism, and the idea that the next Bill Gates or Steve Jobs is right now working away someone in his garage somewhere on whatever will be the next revolutionizing company.

I don't necessarily disagree with this, but I also think that it's perfectly possible for private investors to hold well established individual stocks and outperform the market, and that you don't need to spot the next big thing - the reason why institutional money rarely manages to do so is well argued, but as a private investor you have none of the handicaps that fund managers have.

I agree that Indexing is advisable for anyone who is not prepared to drill down into the weeds of any particular company to do a fundamental discounted cashflow assessment and balance sheet analysis. If you are doing this then you aren't gambling, you are investing.