There are so many unknown variables when picking individual stocks (literally trillions), that is why it is impossible to consistently guess which ones are going to go up or when they are going to go down.
Stock picking is not only a dangerous activity for you to be involved in as an individual investor, but it is also dangerous to invest in mutual funds that employ stock picking strategies. These stock picking strategies are used in most of the mutual funds out there, also known as active investing. These mutual fund managers think they have a crystal ball and can predict the best stocks and drop the worst ones.
Are you Gambling with Your Money?
The lure for stock speculators is similar to the gambler… the excitement that is felt and experienced when they hit the big winner. When we watch the markets we see big winners every day. Similar to walking through a busy casino, we see winners all of the time. This preys on wish fulfillment…why not me?
Just one big winner keeps them coming back until they can break their addiction. Just like the gambler, this usually does not happen until they hit bottom, after the inevitable several big losers in a row.
Time is Money
When picking individual stocks, it becomes an obsession. They check the news and the price almost every day. They think about the stock almost every day, if not every day. I have seen it happen over and over again. These days time is money, and being obsessed over your investments takes a lot of time away from more important things.
Add in the Cost
Another main reason stock picking is detrimental to your growth in your portfolio is the cost. Everytime there is a buy and sell of a stock, there is a cost to you the investor, whether that is direct or through a mutual fund. These costs are even higher if you do online trading. The costs can add up quickly and lead to poor returns, even if you are able to temporarily guess which stocks are going to do well.
Instead of stock picking, invest in a globally diversified portfolio managed by a low fee investment coach that will help to educate you on the investing process. Instead of constantly turning the portfolio over by stock picking and active trading, buy and rebalance when necessary. Long term you will see the fruits of your decision.
By Jimmy Hancock