My Principles of Single Stock Investing
The coronavirus pandemic has spurred a renewed interest in buying individual stocks because so many people are quarantined at home. Additionally, an interesting phenomenon has arisen: sports bettors have nothing to bet on, so they have moved to “betting” on individual stocks. Pair those things with no-cost trading applications such as Webull, Robinhood, and M1 Finance and it’s never been easier to invest in an individual company’s stock.
[Sidenote: Here’s a comparison of all three trading applications named above if you have any interest in utilizing one of them.]
I’ve previously discussed how to attain your dream life in my post, An Antidote to Normal: 8 Phases to Reach Your Dream State. In it, I expound on using your retirement accounts and index investing to increase your net worth and reach not only your financial goals but live your best life. I’m excited because I’ve never covered individual stock investing as a topic before.
Disclaimer: There is an important distinction I need to make. I am not a proponent of “stock trading” or “day trading”. I will be focused on stock investing which is more about purchasing a stock with the intent to hold it for a long time or the business’s fundamentals change rather than for stock speculation.
Paul’s principles on single stock investing:
- Do NOT invest until all non-mortgage debt is paid off. That means if you have consumer debt such as credit cards, student loans, or car loans you should pay them off prior to venturing into single stock investing.
- Do NOT invest in individual stocks until you have maximized your retirement accounts using index funds. Index funds allow you to spread your risk across hundreds of individual stocks. Prioritize that higher than single stock investing.
- Pick individual companies because you like their products or because you understand their business. Don’t choose a company because your cousin or friend gave you a hot stock tip.
- Only invest money that you are willing to lose. Keeping that in mind, you should only invest a small percentage of your net worth. My recommendation is to invest no amount larger than 5-7% of your total net worth.
Next week as part of my Three Action Thursday piece, I will disclose Paul’s Single Stock Investment Portfolio (PSSIP) so you can see some real examples of purchases and the logic behind them.
- What is your personal investment philosophy? Have you thought about it? Have you gone so far as to write it down? If not, do so.
- Do you currently engage in single stock investing? If so, are you applying any of the principles above?
- I would love to hear from you! Email me directly or hit up the Three Action Thursday Facebook Group.**