I was a day-trader, trading stocks quicker than you could imagine. It was exhilarating. It was sometimes profitable. It was RISKY.
I had fun buying and selling my tech and oil stocks, but I soon found that it was not as profitable as I thought it was. I would make a huge profit and waste it away through a hundred bad trades.
Give portions to seven, yes to eight, for you do not know what disaster may come upon the land. -Ecclesiastes 11:2 NIV
It is clearly better to spread out your investments than go “all in” on one venture. I was told this by my broker, but didn’t really listen. I suffered the consequences.
There is so much value in diversifying your investments. If one sector of the economy is suffering, chances are another won’t be. This creates a stabilizing effect that nearly ensures that your investments are safe over a long period of time.
Try mutual funds! A mutual fund is a group of investments that is diversified amongst a wide range of market sectors. Look for mutual funds with long-term track records for decreased risk.
At times, I’m tempted to invest in single stocks. But I’m much wiser than my day-trading days, and I think I’ll just say “no thanks” from now on. How about you?
Don’t confuse owning some single stocks with day trading.
The stocks I bought after the tech bubble burst are doing quite well, better than the averages, and I continue to hold them after 9 years. Apple up more than 20 fold, EMC more than triple, Corning, more than double.
I’ll disclose, individual stocks add to less than 20% of our portfolio, so it’s not as if our returns have blown away the averages, but these well chosen stocks have kept us ahead overall.
The bottom fishing on GM failed me, but I’m happy to own Ford at $2.50.
Joe
Thanks for making the distinction clear JoeTaxpayer!
Excellent article and great blog!
I’ll stay with mutual funds and index funds myself. I’m way too conservative to even think about investing in single stocks.
Excellent Peter! Single stocks can be a financial trap, no doubt. Glad I got some support on this one!
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I think mutual funds and the like are probably best for the majority of people but not everyone. It depends on your knowledge in stocks. Warren Buffett says, ‘Diversification is protection against ignorance.’ he didn’t mean it as a knock against it, but rather saying if you really don’t know anything about stocks, diversification is clearly the way to go.
I like that quote from Warren! I totally understand what you mean. The question I guess then becomes: will anyone know EVERYTHING about a company to truly win with their stock 100% of the time? That’s a tough one! Thanks Frank for being a reader!