One issue when people decide to start single stock investing in that they choose stocks that they know. Back in the 1980’s, people would have picked McDonald’s or Coca-Cola. Today, they would pick Apple or Google. But if you want to own shares of Apple or Google, you would be better off just buying an S&P 500 index fund or ETF, which would contain about 4% Apple, along with large percentages of Google’s parent Alphabet, Amazon, Facebook, and other internet titans. Really if you buy any large cap stock fund, you’ll probably end up with a large amount of Apple stock since it is so dominant in the large-cap area.
And you should be buying index mutual funds and ETFs for a large bulk of your holdings. That is where you should have your 401k investments, your investments for your children’s college tuition, and most of your investing outside of retirement. If you were 45, there would be nothing wrong with a $1 M portfolio consisting of two index funds – half in a large-cap index and half in a small-cap index fund. If you threw in a bond fund into the mix t add a little stability, you’d be in god shape even if you never touched individual stocks.
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But if you did decide to purchase an individual stock or two, I would hope that you would not pick Apple, or Alphabet, or Home Depot, or Exxon as your pick, unless your were in your 60’s. The reason is that a single stock purchase should be done as a way to try to beat the markets. You’re trying to find a company that will grow by 1000% in the next ten or twenty years while the market only grows by 200% to 400%.
Big stocks like Apple don’t do this typically. Neither does Home Depot or Facebook. They did in the past, when they were smaller and more nimble, but now they’re huge juggernauts that everyone owns. How many more people can buy shares of Apple if they already own shares of Apple?
When you’re buying individual stocks, you want to look for growing companies that are the best in their industry. You want to find businesses that are not on every corner or in everyone’s purse and pocket. These are the companies that have a chance to beat the markets if you hold them over long periods of time.
Right now I’m loading up on BJ’s Restaurants and Bloomin’ Brands. I’m also buying into auto parts retailers like LKQ. I like these companies because they are very well run, have been profitable for several years, have lots of room to grow and expand. I’ve done well in the past with Rollins (Orkin pest control) and Sonic. When I buy these stocks, I buy them as an owner, not as a trader. I plan to hold them for years and let them grow. I don’t worry if they sit there this year or even decline a bit since I’m in for the long haul. That’s how you do well with individual stocks.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.