Create your own index fund?

[jleo]

With TD ameritrade now offering commission free trading I find myself buying very small positions in companies I think will perform better then others in coming years this is a very low risk as some I will will invest less then 1k. Anyone else do this and buy 50+ companies in small amounts I am all for indexing but feel like A LOT of stocks in indexes are way overvalued.

I find it fun but I do know this risk of single stock investing, my thought is if you have a bunch of small positions this should reduce risk and before commission free trading this was not worth it as sometimes I will only buy a few shares at a time.

[MustacheAndaHalf]

How are you deciding how much to buy of each stock?

An index fund decides a fixed way of investing that doesn't change.  Some use "equal weights", where during the year they buy and sell to bring stocks back to equal weight.  The most common approach is "cap weighted", which means accepting the market weight for stock, and so buying 2x more Amazon than Johnson and Johnson.

[Andy R]

Essentially you're saying that you know more than the market which is made up mostly of institutional investors who pay a lot to analysts to value companies.

A couple of articles that I think are relevant
The 15-Stock Diversification Myth - William J. Bernstein
Markets aren’t 100% efficient? Whatever | The Evidence-Based Investor

[MaaS]

If you're going to stock pick, this is the worst way to do it IMO.

1) Nobody can know enough about 50+ companies to make an intelligent decision.

2) The bulk of SP500 returns come from a relatively small amount of companies on any given year. Often, they are surprising.  Miss a few of these and you'll underperform.

3) Attempting to figure out when to sell this volume of companies would be... exhausting. Hold forever doesn't really work with individual companies.

If you're intent on investing outside of an index, do it in a very focused way.* Focus on industries you know well and research the individual businesses thoroughly. When you find the right one, make a significant bet.

*Not necessarily recommending this, but the odds of success are much higher than "make your own index" IMO.

[nogopro]

I had the same attitude and did what you are doing for a while. It works. But rebalancing can be a mess.

I also wanted to try out the "HEDGEFUNDIE" experiment for about half my portfolio (google it!). And I found M1 investing coming up often as one means to do it.

Basically lets you make your own ETF, without expense ratios or other fees.

https://www.doctorofcredit.com/m1-finance-investing-review-plus-up-to-2500-brokerage-bonus-and-20-referral-bonus/

[Scandium]

companies I think will perform better then others in coming years .

Please tell me your bulletproof method. I will pay you 4 billion dollars for it in a year when I'm the richest person on the planet.

[EvenSteven]

companies I think will perform better then others in coming years .

Please tell me your bulletproof method. I will pay you 4 billion dollars for it in a year when I'm the richest person on the planet.

Only buy stocks that will go up, don't buy the ones that will go down. Easy.

[Davnasty]

companies I think will perform better then others in coming years .

Please tell me your bulletproof method. I will pay you 4 billion dollars for it in a year when I'm the richest person on the planet.

Only buy stocks that will go up, don't buy the ones that will go down. Easy.

After extensive back testing I can confirm that this is a solid strategy.