Originally Posted by lil smoke
Yeah, I hear that alot. How much control do you have over an index? About how long to reel in decent profit? I'm not interested in waiting over 5 years to make huge profit, I'd prefer 1-2 years medium profit (or loss)... obviously relative to the amount I start up with. I'm no pro, so how would I go about choosing?
The reason why I started picking stocks is because I could at least use some common sense with companies that I'm familiar with and interested in enough to dig into their books a bit.
Article on why stock-picking is a bad idea for any kind of investment strategy:
The most dangerous investment advice is often that which seems most sensible, which is why the worst investing counsel you will likely ever receive is that you should try to pick "good" stocks and sell "bad" ones. You will get this advice in one form or another from innumerable sources, including (some) investment advisers, friends, colleagues, Wall Street, and the investment media. You should ignore it.
Since the dawn of investment time, great stock pickers (there are some) have been revered, and even most novices can proudly recite picks that have produced mountainous returns. ("I bought Google at $85!") Unfortunately, what is smart (or lucky) on occasion often proves dumb over time, and, in the end, most stock pickers do worse than if they had never tried to pick stocks at all. Despite snagging the occasional ten bagger, for example, even professional mutual-fund stock pickers still have depressingly poor odds of beating the market once their losers and costs are taken into account (between 1-in-4 and 1-in-40, depending on how you measure performance). If you pursue a stock-picking strategy, you are almost certain to lag the market.
The problem for investors is that even though stock-picking usually hurts returns, it's extremely interesting and fun. If you are ever to wean yourself of this bad habit, therefore, the first step is to understand why it's so rarely successful. The short answer is that the overall market provides most investment returns, not particular stock picks, so most stock pickers get credit for gains that came merely from being invested in stocks generally. Second, competition among stock pickers is so intense that it is extraordinarily difficult for any one competitor to get a consistent edge. Third, although it is relatively easy to pick stocks that beat the market before costs (all else being equal, you have about even odds of doing this), it is much harder to do so after costs. Even if you pick stocks well enough to boost your pre-cost return by a couple of points, the expenses you rack up along the way (research, trading, taxes, etc.) will usually more than offset your gain.
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There are a couple of other articles that I've posted before, but I know Cyan and I are kind of spitting into the wind here. One thing I think you can't underestimate is that people legitimately have fun
choosing stocks, so as long as the entertainment value you get from stock-picking exceeds the costs occasioned by it, I can't knock it, as long as you realize what you're paying for.