Buying stocks for the first time - how the heck do I approach this?

[StepRightUp]

I've never bought individual stocks. I've gone index funds all the way in my retirement and taxable accounts. But I'm beginning to wonder if my risk-averse nature is limiting me.

So I'm considering devoting a portion of my monthly surplus to individual stocks. I'd love some advice.

Some questions I'm pondering:
-Don't bother and just stick with index funds?
-Buy one to start or diversify at the outset?
-Do it through Vanguard or Fidelity where I already have an account?
-What % of my $1,500 monthly surplus might I put towards this? (EF is fully funded and retirement is maxed, no debt, I rent)
-Stick with blue-chips to start? How to pick a company?
-How do I determine if I know and understand "enough" about a company and its sector to invest in it?

(Apologies if there's another thread that addresses similar questions.)

[disneysteve]

My first question is WHY do you feel you need to add individual stocks? I'm not saying you shouldn't, but I want to know what you're thinking.

You mention being risk-averse, but you can invest entirely in mutual funds and still take as much or as little risk as you'd like. There are thousands of funds out there.

I'm the wrong person to ask about how to pick stocks, so I'll pass on that question. As for where, Vanguard or Fidelity are just fine. I know Vanguard has commission-free trading. I'm guessing Fidelity does too. I have bought some individual stocks in my Vanguard Roth account.

[bjl584]

I know Vanguard has commission-free trading. I'm guessing Fidelity does too. I have bought some individual stocks in my Vanguard Roth account.

I have Fidelity.
Yes, they are commission free as well

[StepRightUp]

The honest truth is I started thinking about it after talking to some folks I trust about the the gains they acquired over the past year as a result of their individual stock decisions. Now I have no illusions that what worked out for them at a given point in time is replicable. But it got me wondering if my mindset were adjusted slightly perhaps I could act on opportunities that I wasn't even looking for before.

[disneysteve]

The honest truth is I started thinking about it after talking to some folks I trust about the the gains they acquired over the past year as a result of their individual stock decisions. Now I have no illusions that what worked out for them at a given point in time is replicable. But it got me wondering if my mindset were adjusted slightly perhaps I could act on opportunities that I wasn't even looking for before.

I am not opposed to investing in individual stocks. I own several currently and I have bought and sold numerous others over the years. There are a number of people here who have done very well with individual stocks. Singuy is probably the SA poster child for this.

That said, let me give you some perspective as you look at the gains your friends have made the past year.

On March 9, 2020 when things crashed, I bought AAL, American Airlines. I sold it on 3/15/21 for a 75.4% profit, phenomenal results by any measure.
Around the same time, I bought JETS, the airline-focused ETF. I sold it on 2/24/21 for an 80.8% profit, again a fantastic return.
One was a single stock; the other was a sector fund in the same industry.

It wasn't picking AAL that was the key to making money, although that did work nicely, but rather identifying a beaten down industry or sector. The ETF carried less risk than the single stock pick. Even if AAL did poorly or even closed up or got sold or merged, the rest of the industry stocks in the ETF would have balanced that out. And in the end, I actually made more on the ETF than on the one company.

In one of our retirement accounts, we also invest in VIGAX, Vanguard Growth Index Fund. That holds 258 stocks in a variety of industries. The 1-year return as of Friday is 61.15%, so not quite as impressive as the sector-focused investment but again, less risk with more diversification.

If you are simply looking to boost returns, you can do it just as well with stocks or funds. There are pros and cons to each approach.

[StepRightUp]

Great examples, thanks. That expands my perspective on this a bit.

[Singuy]

Here are my thoughts on individual stock investing.

It's not for 99% of the people as an INVESTMENT vehicle....lol.

I say this because you need to follow these fundamental truths and see if it makes sense to you(it will not make sense to most people).

1. Are you willing to invest in a large portion of your money? Investing 500 bucks in a stock that 10x does nothing for your overall portfolio.
2. Are you willing to build enough conviction to invest a large portion of your money through mountains of hardcore research?
3. Are you emotionally prepared to lose that large portion of your life savings incase your research was not correct?
4. Are you willing to suffer through months/years of pain, looking at a portfolio that looks to be dead money due to your conviction in your research?
5. Are you willing to hold the stock despite of large drops but more importantly, through large gains?
6. Are you willing to buy a company everyone and their mother thinks it's a turd pending bankruptcy?

The reason why index funds work is because you can sleep well at night. You could care less about the macro economic of things. It's such a safe investment vehicle that you are willing to put in unlimited amount of left over funds and not care. This large portion of your savings will grow very quickly, because it's so large.

When your risk tolerance doesn't allow you to go big on individual stocks, then you are just wasting your time. I put 6 figures into individual companies, betting they are the future which then can actually mounts to some real returns. But to do such risky things involve my family making good income AND having zero debt, not even mortgage debt. Also our age allow us to rebuild if we lose everything. All of these factors ease the mind and help me cope emotionally when the market goes south fast.

The game is painful and is a grind. You try to minimize risk as much as possible through mountains of research, dedication, and having a long investment time horizon while at the same time not letting short term price action phase you. The 6 points I listed above goes against human instinct and human logic.

However if you are prepared to do this, just remember one thing..NO REGRETS. None of this "I should have put x amount of money here, or I should have sold this here". No one has a crystal ball..you build a position you are happy with and stick to it.

[corn18]

Here are my thoughts on individual stock investing.

It's not for 99% of the people as an INVESTMENT vehicle....lol.

I say this because you need to follow these fundamental truths and see if it makes sense to you(it will not make sense to most people).

1. Are you willing to invest in a large portion of your money? Investing 500 bucks in a stock that 10x does nothing for your overall portfolio.
2. Are you willing to build enough conviction to invest a large portion of your money through mountains of hardcore research?
3. Are you emotionally prepared to lose that large portion of your life savings incase your research was not correct?
4. Are you willing to suffer through months/years of pain, looking at a portfolio that looks to be dead money due to your conviction in your research?
5. Are you willing to hold the stock despite of large drops but more importantly, through large gains?
6. Are you willing to buy a company everyone and their mother thinks it's a turd pending bankruptcy?

The reason why index funds work is because you can sleep well at night. You could care less about the macro economic of things. It's such a safe investment vehicle that you are willing to put in unlimited amount of left over funds and not care. This large portion of your savings will grow very quickly, because it's so large.

When your risk tolerance doesn't allow you to go big on individual stocks, then you are just wasting your time. I put 6 figures into individual companies, betting they are the future which then can actually mounts to some real returns. But to do such risky things involve my family making good income AND having zero debt, not even mortgage debt. Also our age allow us to rebuild if we lose everything. All of these factors ease the mind and help me cope emotionally when the market goes south fast.

The game is painful and is a grind. You try to minimize risk as much as possible through mountains of research, dedication, and having a long investment time horizon while at the same time not letting short term price action phase you. The 6 points I listed above goes against human instinct and human logic.

However if you are prepared to do this, just remember one thing..NO REGRETS. None of this "I should have put x amount of money here, or I should have sold this here". No one has a crystal ball..you build a position you are happy with and stick to it.

This is great advice. It is nice to have some individual stock investors on here. Especially ones that tell it like it is. Thanks Singuy!

[LivingAlmostLarge]

Also maybe you can just deem a portion for fun. Maybe just stick a tiny bit into something and "play money."

[StepRightUp]

Here are my thoughts on individual stock investing.

It's not for 99% of the people as an INVESTMENT vehicle....lol.

I say this because you need to follow these fundamental truths and see if it makes sense to you(it will not make sense to most people).

1. Are you willing to invest in a large portion of your money? Investing 500 bucks in a stock that 10x does nothing for your overall portfolio.
2. Are you willing to build enough conviction to invest a large portion of your money through mountains of hardcore research?
3. Are you emotionally prepared to lose that large portion of your life savings incase your research was not correct?
4. Are you willing to suffer through months/years of pain, looking at a portfolio that looks to be dead money due to your conviction in your research?
5. Are you willing to hold the stock despite of large drops but more importantly, through large gains?
6. Are you willing to buy a company everyone and their mother thinks it's a turd pending bankruptcy?

The reason why index funds work is because you can sleep well at night. You could care less about the macro economic of things. It's such a safe investment vehicle that you are willing to put in unlimited amount of left over funds and not care. This large portion of your savings will grow very quickly, because it's so large.

When your risk tolerance doesn't allow you to go big on individual stocks, then you are just wasting your time. I put 6 figures into individual companies, betting they are the future which then can actually mounts to some real returns. But to do such risky things involve my family making good income AND having zero debt, not even mortgage debt. Also our age allow us to rebuild if we lose everything. All of these factors ease the mind and help me cope emotionally when the market goes south fast.

The game is painful and is a grind. You try to minimize risk as much as possible through mountains of research, dedication, and having a long investment time horizon while at the same time not letting short term price action phase you. The 6 points I listed above goes against human instinct and human logic.

However if you are prepared to do this, just remember one thing..NO REGRETS. None of this "I should have put x amount of money here, or I should have sold this here". No one has a crystal ball..you build a position you are happy with and stick to it.

Wow. Thanks for that. The amount I'd consider investing would definitely put it in the fun/hobby category, not the INVESTMENT category, by these standards. Which is fine too. I've been reflecting on the WHY I'd be doing this per DS's question. Helpful all around.