Letting guys who run hedge funds talk us out of passive investing.
They’ve studied this — a lot of different professors have studied the results of active vs. passive investing and passive works.
And it works not because it’s the S&P but because it takes the emotion out of the investment. (Vanguard btw has several market funds where you can invest in up to 3000 stocks and an international with 5500 stocks)
Guys (and it is very often men in my experience) who like to invest like the adrenaline rush and the competition — but most of us are not disciplined enough to set a target and sell at that target no matter what the market is doing. We’re also not disciplined enough to hold when the market panics. (although small investors did better on that scale in 2008 than did the the big investment managers).
Also look at how much active investment costs you in fees & charges and net that out of your profits.
When it works — when you’re the one who was smart enough to buy IBM at 12 or invest in Google or Amazon when they were losing money, it’s wonderful. But sometimes you’re the schlub who bought Lucent at $84 only to see it plunge a few years later to $0.55. (Yes, a smart person sold it before it hit $0.55 — but a lot of smart people kept expecting it to recover.) If you’re not doing this full time or you’re not a venture capitalist, you are at an information disadvantage.
Think on Lucent. A lot of brokers told their clients to buy it. The brokers didn’t take a loss — they still made their commission.
Best advice I got was to split your serious saving — your retirement, your house downpayment, your kids’ college funds from your play money. Put a percentage of your investments into individual stocks and be a trader. Do it for the fun of it. But the money you know you’re going to need? Passive investment all the way.