You need an information advantage to pick stocks. You need to have some reason to believe you have information that the rest of the market does not (or that the rest of the market is ignoring), which lets you better estimate the future profits of the company. And then you compare that against the market price, and if the market is being irrational, trade.

If you have this, you can get by with a very small portfolio, often just a handful of stocks. And the only ongoing effort is to periodically re-evaluate whether the market has caught on to the information advantage that you're trading on. You do need to continue to keep informed, but daily trading is ridiculous.

If you do not have this, you will lose your shirt regardless of how much you diversify.

>You need an information advantage

Yeah, exactly my point. You need to spend >20 hours to research a single company and will chose to invest in 1 out of 10. Those are the optimistic numbers.

So 5 stocks is 1000 hours. How many hours to learn how to do your due diligence? How many hours per month, every month to keep an eye on what is going on and optimize if necessary?

The information advantage is when you know something that's true that most people haven't yet realized to be true, often accredited to Peter Thiel. Examples from the past:

- Smartphones > dumb phones (invest in AAPL)

- more dollars spent with online ads than TV and Print (invest in GOOG)

- cloud computing is better than managing your own servers (invest in AMZN)

- eating Chipotle is a better option than McDonalds (invest in CMG)

These information advantages are not necessarily gained by spending many hours of research, but a side effect from every day living and working. Will a research analyst realize the impact of a scalable computing API more than engineers that relies on it for their careers?

A future example: If you're a programmer using Github for every job in the past 10 years, maybe buying Github stock if it IPO's wouldn't be so bad.

>often accredited to Peter Thiel

Only in Silicon Valley would people give Peter Thiel credit for an concept that's been around for 150 years of investing.

>maybe buying Github stock if it IPO's wouldn't be so bad.

Maybe? That doesn't sound very certain, and demonstrates how difficult it is to pick these things in advance. Do you know, or not?

I mean, it's all well and good to look back at some ideas that were good investments, in hindsight. Do you not think armies of people are trying to find "good" ideas that no one knows about? How many good ideas went nowhere?

"Maybe? That doesn't sound very certain, and demonstrates how difficult it is to pick these things in advance. Do you know, or not?"

Without a hypothetical IPO price, that question is unanswerable.

I honestly still agree with your general point, but that's not specifically a valid argument.

This is exactly the thinking of the average Joe who goes to invest on the bourse and gets slaughtered. The github example is especially apt. Go to Vegas. Better odds.

We're all average Joe. "Information advantage" is a very rare thing. Even those who think they have it, probably don't. Maybe they'll learn they don't this month, maybe it will be this year. This is entirely the point of Vanguard.

My point is that you have no way of discovering whether the fund manager you're thinking of investing with actually does that research. I know a number of people who work in asset management, I used to build software for hedge funds, and I'm married to an investment professional. There is a wide variety in the quality of research they do and their standards for due diligence. Some of them will personally build relationships with the employees and suppliers of the businesses they're thinking of investing in, so that they know of potential problems before the CEO does. Others basically invest because their friends in peer companies do, with minimal diligence on the company itself. The former tend to do a lot better than the latter.

As a retail investor, you have no visibility into any of this. Most asset management companies will not let you interview their fund managers, and most fund managers won't divulge their research strategies if asked. You basically just get their pedigree and resume, which is useless.

With individual stocks, you can at least choose to put in the legwork to do your research. Or as sibling commenters have suggested, you may get it tacitly by being embedded in the same industry as the company you're thinking of investing in. Someone who works in tech and is a user of AWS is in a much better position to judge the importance of a new AWS product announcement than someone who covers Amazon as an outside analyst.

>Most asset management companies will not let you interview their fund managers, and most fund managers won't divulge their research strategies if asked.

If you have 100k to invest, better put them in the bank and don't bother with "investing".

Nah. Depends on whether you're in it for the average or the variance. If you're in it for the average you might as well pick an index fund.

Don't start with this condescending "nah" when you are going to make a qualification after that and exclude the very case we are discussing here.

Sorry, didn't know it had condescending connotations.