Professional traders have been known to put in the time to learn about this stuff too. Don't fool yourself. You might make some good bets. You might make some bad ones. You're not going to systematically outperform a market as an individual investor by anything but luck (or plausibly by chasing a "hunch" based on good intuition and evidence that the professionals missed -- but don't fool yourself, that's luck too).
I have consistently outperformed the market since 2007, when I started investing (I refer to the market as the DOW).
Just because the average salary in the United States is $57,000 (random-ish number) does not mean that's what I have to settle for because it's the average. If I put in the time, work smart, work hard, and keep learning, then the expectation is that I can beat the average income. Likewise, I can beat the average market by putting in more time, more effort, more learning, than the average investor.
I tried forex for 2 years, and did poorly, so I stopped, and learned my lesson.
I bet on Ford at 1.60. I bet on Tesla at 16, and 24. (not heavily mind you, just 2.5% of my portfolio). I research the companies, the management. I not only go to the annual report, but I also read books by the founders, read about their manufacturing (are they using lean like Toyota or lean like GE?). I went after Ford based on Mullally's performance at Boeing. I went after Boeing based on the 787's promises. (It's doing very well.) I read Deming.
I lost $900 in American Airlines, and $300 in Washington Mutual. I did lose $6K on a $10K mutual fund that went south in 2007-2008. It looked like it would recover, but then wasn't following the market up. I've made a lot less money with mutual funds that with stocks.
Granted, I've been riding a pretty nice wave since the drops of fall 2007 and mid 2008, but I don't blindly pick a stock and buy in. I'm very careful where I put the money, and will do 2-4 weeks of research on a single company.
I also research their competition, and business trends in general. This means I don't watch TV, don't watch sports, and will do one movie per month with my son. Instead, I read. A lot.
I do max my 401k because of company matching, but I'm not holding my breath on returns. There's an event horizon where it's better not to match and buy securities directly, because of the 1% or so fees. (You start out with twice as much, but you get less annual yield.) You don't pay taxes till you sell, and you can sell at a time of your choosing.
I don't day-trade, I don't even month-trade. I generally invest for 7-15 years.
Finally, I invest only my own money, and that is a very strong motivator for spending the time to do it right. (Small caps do slightly better than large caps--more risk, more return. Diversify.)
I agree with this approach. Keep the number of individual stocks you invest in at a manageable level. Know why you invested in them, and go long. IMO the longer you go, the less noise in the decision-making. Ex: Ford is at >$2. Will Ford go bankrupt, or will it survive? If it will survive, then it will be worth having in 10 years, especially if dividends return. In that case, you have based your risk on just one question that you need to settle to your satisfaction. A much more difficult question is: Will Ford be higher next year than it is now?
I also agree with investing in the management.
Finally, I think investing in some individual stocks is probably a good way to stay mindful about your investments in general.
Have you outperformed on a risk-adjusted basis (ie: delivered alpha)?
Or simply beat on an outright basis?
That time period, aggressive buying of nearly anything beat the DOW-30 (as my portfolio handily beat the DOW30 as well, since I'm full risk-on at this point in my life). I know I crushed the DOW, but I'm much less convinced that I delivered alpha.
You did that over a period that was a decidedly bull market, though. Presumably sokoloff's question was intended to point out that very similar strategies (trying to pick "winners") is likely to underperform the market in bear conditions, sometimes very badly.
I knew a lot of people who thought they were hot stuff day traders back in 1998 too. Spoiler: they weren't.
I went in in August 2007, when the DOW was at 14700 or so. I watched my portfolio dip from $27K to $18K. Everyone I knew was going cash. I didn't. I trimmed the sails, turned into the wind, and learned. There's no better learning that reading everything you can about the market when the market is doing back-to-back triple-digit drops in the 8000's, with your money in the game. I sold some pigs, bought some as they were going down. The best pickings were on the floor, BK at the corner, and people had written them off. I got lucky that I was buying when everyone was scared, but I didn't buy because the stock was low, I bought because I knew the companies had customers, long term contracts, good manufacturing know-how, good management, and made products their customers wanted. At that point, I reinvested another $25K in securities, from when the DOW was around 7500, and gold was shooting up, to about 10,000. After that, it was all growth, reinvestment of dividends, etc. I pulled $10K out in December 2012 (down payment on car), and had $61K in the portfolio after. This week, not really doing anything, it's at $99K. Yes, it's a wave, but like in surfing, you gotta be in the water to catch it. I have holdings in about 60 companies. My last trade was selling $1600 of Honda stock and buying $500 of Fedex and $600 of Toro, both adding to existing positions.
