This is exactly what I complained about in the other thread. Person asks about individual stocks and in response gets assumption layered advice that he or she should not even bother trying.
"...The way I look at it is this: there are a ton of super smart people graduating from Ivy League colleges every year who want to make money like sharks want chum. They are (let's be fair) smarter than you, and smarter than me, and they will work 18 hour days for big investment banks or hedge funds. They have, for all practical purposes, infinite financial resources as well as, in many cases, access to knowledge that I don't (or at the very least, access to information before I can get my hands on it.) Their computers are next door to the exchange so their trades happen instantaneously.
They are my competition if I want to play the stock picking game. And I have to pay quite a bit in fees to play at all."
"...If you have your own index of 25 or 30 stocks with decent diversification, you will have a greater probability of both over performing and underperforming the market by a lot. Your portfolio will have "fat tails." "
I mean, if you go to a real estate forum and tell people that you want to buy a house or an apartment to rent out... for a certain price and you expect to get certain amount of rent for it... and ask for further advice people would go over the details of your investment -- no one would dare say something silly like: "Don't bother, just sell the place and buy a super REIT that will cover all housing in the world, you don't want fat tails."
Index funds are great -- I advise all my friends and family who are not interested in learning about common stock investment, or are not interested in real estate, but still want to invest to hold low cost index funds.
However, the theory behind how they were sold to the public really did poisoned a big chunk of the truth about common stocks.
So here is my attempt to un-poison:
1. Risk of a common stock or a businesses is not volatility. Its not the standard deviation of the price movement of a stock. Risk of a common stock or a businesses is the certainty or uncertainty that a businesses can continue to perform and thrive in the future years.
2. Given this definition of risk, diversification useless if not detrimental. You can eliminate true businesses risk by only investing in a businesses which, bases on your analysis, you are confident will perform well and thrive in future years.
3. Given this, and assuming that you buy and hold shares for purposes of growing your investment with the value of the businesses over time, the fees of owning a few well understood businesses are much lower then even the lowest cost index funds.
4. The fact that someone else has computers located in NYSE bathrooms or works 23 hours a day is irrelevant. The 2 cent difference in price is meaningless as long as you (to repeat the key phrase): buy and hold shares for purposes of growing your investment with the value of the businesses over time. And the extra hours and resources are meaningless as well, since you don't need all of them to understand the future of a some businesses for the next five years or so.
The only thing left then is to discuss the interesting details of how any one business uses capital and labor to create earnings and value.