Investing in Stock

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I will begin by saying , as with investing in anything, whether it be real estate, collectibles, commodities, or art; you must to do your homework if you want to be successful. You should have knowledge that gives you a level of confidence in your understanding of the subject. And it’s in your best interest to continue educating yourself on the subject matter throughout your investment process.

If your stock (company) is not outperforming the S&P 500, then what’s the point of owning it? Simply own the Index.

With that said, all too often I have clients and friends that want to talk about stocks (companies). Either they have a “hot tip”, or they want to hear my opinion about an investment.  I will say that hearing about anyone that has built wealth on “hot stock tips” is like stories of Sasquatch & UFO sightings; you may know someone that knows someone, but nobody you actually know has achieved this feat. People I have engaged with that invest in the stock market, are quick to brag to me about the one stock tip that made them money. Yet, I never hear about the multiple instances of them losing money which has kept them in the same financial status. Other times I come across the person that attempted to invest a few times based on “stock tips”, they lost money, so they have no desire to invest in stock again. Which is a shame.

As with any investment, the longer you can hold it, the greater your probability of positive returns. Follow the sage strategies of Warren Buffett, Peter Lynch, and Jack Bogle, when it comes to stock (companies); choose companies that you know and understand or simply use an index. If you don’t intend on owning the stock (company) for 10 years, then don’t even consider it. Finally, continue to do your homework. Because sometimes our best intentions are to hold a stock (company) for those 10 years, but the industry has evolved. Your homework should involve monitoring the industry and how your stock (company) fits into that storyline.

The key point of this blog post… consistently analyze this element… if your stock (company) is not outperforming the S&P 500, then what’s the point of owning it? Simply own the Index. Sometimes, I’ll be challenged by those you ask about the “dividend paying stock”. I’ll address that in Part 2.

Why would you search for a needle in the haystack when you can own the haystack.

-Jack Bogle

By owning a stock (company) you are taking on additional unnecessary risks that you are able to potentially decrease by owning an index fund. Recognize that the stock market historically has produced the highest average rate of return versus all other assets over long time periods (10 years, 20 years, 30 years), but it also carries with it the highest level of risk. The risk becomes magnified if you own singular stocks (companies).

Therefore, if you are going to take on additional risk, then you should be rewarded with a higher rate of return.

If you are doing your own stock investing or you have an advisor, stop monkeying around, and ask this question: Is your stock outperforming the S&P 500 over 3 years, 5 years, 7 years, 10 years?

References:

[1] https://www.investopedia.com/articles/stocks/11/risks-every-stock-faces.asp

[2] https://www.suredividend.com/peter-lynch-investing-lessons/

[3]https://www.investopedia.com/ask/answers/081114/how-does-warren-buffett-choose-what-companies-buy.asp

[4] https://www.usatoday.com/story/money/2018/02/24/warren-buffett-letter-3-tips-stock-investors/370117002/

[5] https://www.businessinsider.com/warren-buffett-best-investing-advice-for-beginners-2017-11#4-only-make-investments-that-you-understand-4

[6] https://www.forbes.com/sites/investor/2017/06/07/how-to-use-jack-bogles-rules-for-investment-success/#1f3904121c0e

[7] https://www.investopedia.com/articles/stocks/06/peterlynch.asp

[8] https://www.businessinsider.com/warren-buffett-investing-rules-2015-6

[9] https://www.cnbc.com/2018/04/24/why-an-index-fund-is-warren-buffetts-favorite-way-to-invest.html

[10] https://www.marketwatch.com/story/7-timeless-investing-lessons-from-vanguard-founder-john-bogle-2017-06-06

[11] https://www.investopedia.com/articles/financial-advisors/012716/where-does-john-c-bogle-keep-his-money.asp

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