Stockpicking v. Bundling (ETF's, Mutual Funds, etc.)

This site is about profiling individual stocks that you can discover and research on your own.  Many professionals would refer to this as “stockpicking”.  You are picking individual stocks and investing in them.  Oddly enough, as a beginner interested in doing things on my own, I find this much more appealing, interesting and manageable than going through an advisor who would likely bundle stocks in a certain industry or risk profile together.  The stock picking approach takes a bit more work as you need to do your own research and work to determine what exactly you want to buy but I like the control I have over the process.    

My goals at this point are very modest—I want to learn and figure out how things work so I think choosing to pick individual stocks is the best way to do that for me at this time.  Plus, some would say that it is better to take the time to invest in a few good companies than pay someone else to invest in a bundle of mediocre ones.   However, some of you may want to take a different approach and since I see "ETF" and "Mutual Fund" on almost every financial document I see or read online and in print, I thought I would provide insight into what they are exactly!    

ETF’s and Mutual Funds    

Some may like the idea of putting their money into a mutual fund or an ETF (Exchange Traded Fund) which contains a bundle of stocks, most often in one area (for example, energy or agriculture) and that way if one stock goes down, the others may go up and your risk is diversified across all the stocks.  Your position may be evened out by the ups and downs of multiple stocks as opposed to the singular up or down of owning just one stock. 

The difference between an ETF and a mutual fund is centred around trading and pricing.  An ETF trades throughout the day like a stock would but a mutual fund is priced one day after the market closes.  Also, an ETF tracks the index of the stock market it trades on (an index is the value of a section of the stock market or related stocks).   In order to buy into a mutual fund, you would need to go through a professional advisor who manages the fund.  You can buy an ETF through a brokerage or discount brokerage on your own.  This is the extent I am going to discuss mutual funds or ETF’s at this point on the site.  We can discuss them more as we go along.

Stockpicking

I am interested in picking individual stocks and learning about the industries and companies behind them.  By doing one’s own research layered with their own thoughts about industries and trends, you can make some good investment decisions.  Many experts appear to agree with that notion.  Jason Kelly in his book that I have referred to already in this blog, “The Neatest Little Guide to Stock Market Investing” is essentially discussing the stockpicking strategy.  It is about finding good companies to invest in and not worrying so much about the stock market itself but rather, figuring out what in the long run is a good investment because the company itself is flourishing or has the potential to flourish.  We are all capable of taking our best shot with that approach through our own research and existing knowledge.  Spending some extra time on finding a few good investments makes more sense to me than spending less time on a bundle of investments I don’t know much about.   

Full book cite-- Kelly, Jason. The Neatest Little Guide to Stock Market Investing. New York: Penguin Group, 2012. Print   

*top photo by Scott Webb via Pexels