Buying Stocks

My approach to investing is to buy index funds. My reasons why are here.

Some people would rather buy their favorite individual stocks. Every now and then, I also buy individual stocks. I think of this a bit like gambling.

Whereas index funds tend to go up over time, many individual stocks do not. Some do. You just don’t know which are going to be long term winners. Nobody knows. There’s no way to know for sure.

Still, if you want to buy individual stocks, you can improve your chances by considering the following.

• The share price of very large companies tends to move more slowly than the share price of smaller companies. A lot has to happen for a billion dollar company to become half as valuable! (For example, Apple stock only fell from $81.24 on February 14, 2020 to $57.31 on March 20, 2020, toward the beginning of the Covid-19 pandemic. By June 5, 2020, it was already up to $82.88.)
• Be diversified. If you have $5000 to invest in stocks, consider putting it into at least ten different stocks.
• Small cap stocks and micro-cap stocks tend to do best when interest rates are low, when it’s not as expensive to borrow money.
• Be careful who you listen to for investing advice! I think The Motley Fool and a few others have a decent track record.
• NEVER invest more than you can afford to lose. This is especially true when buying individual stocks.

My only other suggestion is to keep track of how your stocks perform over time. See how they do compared to your index funds.