Stock-picking, however, is not without its challenges, not least of which is timing.
Ever heard the term ‘buy low, sell high‘? Sounds great in theory, but it’s incredibly hard in reality. You need to invest a significant amount of time constantly reviewing the market and watching indicators.
On top of that, you have to get the timing right not just once, but twice. You need to buy and sell at the right time. Just getting one of these transactions right is hard enough.
Trust me, I’ve tried. I have chosen some great companies to invest in, but I have also chosen some absolute stinkers! My investments into an African farming venture and the ensuing cataclysmic losses I incurred are a source of continual ridicule among the Eat Sleep Money team.
Nowadays, here at Eat Sleep Money, we primarily invest through passive Index Funds. But we do have a small fund allocated for stock-picking. For us, it adds an element of fun. And for that reason, we consider it ‘fun-money’ and can afford to lose the whole lot. As I have proven, although it’s not the kind of “fun” I want to repeat!
If this time investment and level of risk appeal to you, then go for it. But for most people, it’s too time-consuming, confusing and risky. For these reasons, many consider Index Funds.