30-07-2025
Why You Don't Need To Buy Individual Stocks
Rory O'Hara, CFP®, CRPC®, is the founder and senior managing partner at Ausperity Private Wealth.
According to a recent report, 65% of actively managed equity funds underperformed their benchmarks after one year; 'across asset classes, underperformance rates typically rose as time horizons lengthened,' and after 15 years, no one outperformed.
Data like this helps illustrate why I don't buy individual stocks. Even so, much of the market-focused media, especially television networks like CNBC, Bloomberg or Fox Business, devote a significant portion of their programming to discussing individual companies. Who's the day's top performer? What's Tesla doing today? What did this CEO say about the earnings?
None of these things matter to me. Still, it's what drives ratings and gets clicks, so that's how the media covers the market. As a result, many investors end up with a distorted view of how to invest for the future and what their portfolios should look like.
This is not to say investing in individual stocks is always a bad idea. Try to convince someone of that who invested in Apple on the day it went public and has never cashed out a dime. However, evidence suggests that consistently getting it right over the long term is extremely unlikely.
Investors, Influencers And FOMO
Over time, many of the catchy names have changed: Nifty Fifty, FANG, FAANG, the Magnificent Seven and the Incredible Eight. And even the mediums have evolved, with influencers today—many of whom have hundreds of thousands of followers on platforms like Instagram, X and TikTok—eager to offer advice.
Their strategy is the same as the legacy media: Grab the most eyes and ears by spotlighting trendy, headline-grabbing companies, and do so with hyperbolic gusto. Of course, none of them knows what the future holds either. But no one will admit that.
The inescapable truth is that, over time, the broad market will outperform most individual stocks, even ones that most feel 'can't miss.'
Consider Cisco. In early 2000, before the dot-com bubble burst, it was the it stock. If you didn't own Cisco back then, you weren't a serious investor—or at least that's how many felt. It was Nvidia before Nvidia, regularly delivering outsized returns.
At the time, it would have seemed inconceivable that it would trade for about five dollars less today than it did then. By comparison, over roughly the same period, the S&P 500 posted an average annual total return of 7.84%, meaning that anyone who put $100,000 in an index fund at the beginning of this century and didn't touch it would have enjoyed a gain of almost $560,000.
Getting Lost In The Weeds (Or Rough?)
Part of the problem is the sheer volume of information that's available. In some ways, getting investment advice online is like a golfer whose Instagram algorithm is nothing but instructors and influencers offering quick, 30-second tips.
Some of the suggestions are good. Many of them are not. Either way, though, the more you watch these clips, the worse you will get. The reason? You won't have a single swing thought, as most golf teachers suggest—you'll have about 25 of them.
Maintain your spine angle. Shallow the club. Keep your arms close to your body. Clear your hips. It's all too much to think about while trying to put a good swing on the ball. The better approach is to focus on doing a couple of things well and keep it simple.
The same general principle applies to investing. The more TV you watch and the more you listen to pundits, the worse you're likely to do. Too much of your attention will go to trying to get in early on the hottest new stock with the most upside. While you might end up investing in the next Apple that way, making mistakes that could harm your long-term financial well-being is the more probable outcome.
Beyond Active Management And Toward Active Engagement
Alpha is great. It's also elusive. When looking for an advisor, therefore, be wary of anyone who says they will actively manage your portfolio.
Instead, prioritize one that will stay actively engaged with you, including everything from shielding you from too much risk to staying on top of your financial, tax and estate planning. That's where the real alpha is.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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