Should You Own Individual Stocks?
February 26, 2022 | by V. Henry Astarjian | Posted in Blog
Buying individual stocks is a great way to invest. It allows you to create a uniquely customized portfolio where you own only those companies that meet your investment criteria.
With individual stocks you always know exactly what you own and why you own them, to paraphrase Peter Lynch. You have transparency. This can be invaluable as you make important decisions on asset allocation, industry weightings, and macro trends.
Individual stocks can help you avoid companies that may not meet your ethical or religious standards, adding another degree of control and transparency to your investing. Mutual funds and ETFs on the other hand, bundle dozens, or hundreds of stocks into one investment vehicle, making it difficult to know what you own.
Unlike mutual funds and ETFs, individual stocks for the most part have no underlying management fees. That allows you to create relatively low cost portfolios and to keep more of your profits.
And investing in individual stocks gives you a chance to do better than the average, though that’s never a guarantee.
All of that said, individual stock ownership is not for everyone.
Building an effective portfolio of stocks requires interest, time, and skill. It is a research-intensive process that has to be repeated many times in order to create a well diversified portfolio.
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But aren’t individual stocks risky?
The great investor Warren Buffett is quoted as saying, “Risk comes from not knowing what you’re doing.” That couldn’t be more true than in stock picking!
My biggest advice to DIY investors is to do your research and to think upside down when building your portfolio, by which I mean consider risks first and profits second. Most people do it the other way around, only considering a stock’s profit potential, but not its risks.
If you are looking at a specific company, it makes sense to start by understanding the risks and challenges the company faces. You can easily get a sense of these things by reading the risks section in the company’s 10K annual report. Those are readily available online. That would then put you in a much stronger position to decide whether or not this particular company and this particular stock are right for you and if individual stock ownership is the way to go in building your investment portfolio.
Disclosures: Waterstone Advisors, LLC is a Massachusetts registered investment advisor. Registration with securities authorities does not imply a certain level of skill or training. Investment results are not guaranteed. Investing carries risk of loss, including loss of principal. For additional information and disclosures, please see our ADV Part 2 (the “Firm Brochure”) in the Our Approach page of our website at www.waterstoneadvisorsllc.com , or contact us at 978-828-2188.