Wednesday, September 16, 1998

Individual Stocks vs. Mutual Funds
by [email protected]

The last several weeks have enforced my belief that it is better to own individual stocks and not mutual funds. Here's why:

1. I know which stocks I own every minute of the day. With a mutual fund I don't know on a daily basis which stocks the fund manager is buying or selling.

2. I have no input into what the fund manager buys or sells. With individual stocks I made the decision to buy, why I decided to buy a stock, and how long I want to own it. Other investors don't influence what stocks I own.

3. A mutual fund manager may be forced to sell shares in companies I want to own to meet redemptions. I am not inclined to panic. In a mutual fund I have to hope other investors in the fund also don't panic.

4. By owning individual stocks, I have direct control over my investments. In a mutual fund, I turn control over to someone I have never met.

5. By owning individual shares, I decide how many companies I want to be invested in at any one time and I control the amount of diversification I have. In a mutual fund, there may be so many different stocks that I am over diversified for my approach to investing.

During times that challenge one's convictions, I like making the decisions. Besides, how do I know if the fund manager is smarter than I am? If I was smart enough to make the money, I believe I am smart enough to invest it. To the winner goes the spoils.

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