Don’t Try and Pick Individual Stocks

One of the funniest things about the stock market is that every time one man buys, another sells, and both think they are astute.

— William Feather, Author

If you’ve ever watched a flock of birds or school of fish, you’ve seen how they all move in unison, changing directions quickly and precisely all together.

But if you focus on just one fish (or bird) things get much more random. It may not be doing what the others do exactly. It might go left when the school goes right. It might lag or straggle.

It is much easier to see what the group is doing and where it is headed.

Stocks are the same way. Individual companies may or may not follow what the rest of the market is doing. Perhaps their CEO was just fired. Perhaps a new product isn’t selling well. This idiosyncratic risk makes them much riskier than investing in the market as a whole. It is also really difficult to pick stocks that will do better than the market, that will swim ahead. But over time, the market as a whole tends to move in predictable directions and reward investors.