All my reading on financial independence to date has focused solely on either rental properties or index funds or a mix of the two as the route to early retirement. So I was surprised and intrigued to listen to episode 75 of the brilliant Choose FI podcast with Brian Feroldi, writer for The Motley Fool on “The Unfair Advantages of the Individual Investor”.
In the episode, Brian proposes that individual investors have an advantage over investment professionals because we are more willing and able to take a long term view of the market. Investment professionals are concerned with short term gains, maybe only up to 3 months into the future, because that is what their customers are largely concerned with. Add in an individual investor’s ability to minimise fees and some time spent researching appropriate companies and this could be a successful addition to a wider investment portfolio.
Over on the Afford Anything podcast, Paula interviewed Morgan Housel from The Collaborative Fund (and a former writer at The Motley Fool and The Wall Street Journal) in a similar conversation on episode 125 “How to Gain a Competitive Edge, with Morgan Housel”. Morgan noted that the values of patience and long term thinking give individual investors a significant competitive edge over investment professionals.
I found both conversations really interesting and I like Brian’s suggestion to make investing in individual stocks a small part of a wider portfolio. It is inherently riskier than an index fund but the potential returns are much greater so I feel comfortable allocating a small amount of my monthly investments to individual stocks but where do I start?
How about the person widely recognised as the greatest investor of our time? Warren Buffett, CEO of Berkshire Hathaway, has a net worth of more than $84 billion and showed entrepreneurial spirit at the early age of 11. He is known for following the concept of “value investing” coined by Benjamin Graham and described in his book “The Intelligent Investor” first published way back in 1949. Value investing involves having the patience to buy a stock at a price that it is below it’s market value effectively like waiting to buy any product when it is on sale.
Before I jump into this venture I intend to read both The Intelligent Investor and a few annual reports written by Warren Buffett to learn more about the concept and the practicalities. I’ll be summarising my research and next actions over the next few blog posts but in the meantime, has anyone experimented with individual stocks? How did it go?
2 thoughts on “An experiment in individual stocks”
Came across your blog after it got linked at Ms ZiYou’s blog.
I think it’s fantastic that you got inspired by that Channel 4 programme, which wasn’t perfect by any means but since it managed to get the message across to you and encouraged you to look into FI further, then it was a success!
Anyway, I have some individual shares which are a small part of my portfolio, which is predominantly in index trackers. They are riskier and not all the ones I’ve picked in the past have done well but in the main, I’ve been happy with them.
As for how to pick your shares, here’s a great link: https://www.ukvalueinvestor.com/2018/05/how-to-build-a-high-yield-low-risk-portfolio-of-shares-a-12-step-guide.html/ I have to say that although I haven’t followed every single step for my own picks (because I didn’t know about them at the time!), I intend to follow for any future picks I make.
Anyway, all the very best with your FI journey – at some point, I’ll catch up on your older posts but it looks like it’ll be an interesting read!
Hi and thanks for reading! I’ve come across your blog before and will be heading over again soon to read your updates!
Yes the Channel 4 programme was rubbish and the presenters seemed to conclude that it was too difficult to retire by 40 but I was so intrigued that I googled “youngest retiree in Canada” because that was all the information I had and luckily up popped Millennial Revolution.
Thanks for the link on picking shares, I haven’t had much time to look into anything yet but I’m hoping to start this week and that looks like a great place to start!
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