It automatically grabs money from my main checking account every week from April to December ($100 a week because the yearly limit on a Roth IRA is $5k) and I top it off when I do my taxes every year. That's also when I take a look at the portfolio and set it to put money towards whatever bit needs rebalancing. About 75% of my money gets invested in index fund ETFs and 25% in funny-money investments. I understand that the math is very much against me if I pick stocks for myself but, hey, I played WoW and enjoy the feeling of seeing pixels move on command, so that 25% is essentially buying myself permission to not touch the other 75% ever. (Ironically, I lucked out on one of my picks -- Chipotle -- and now burritos are a larger contributor to my net worth than anything but bingo cards.)

Don't sell yourself short! If you learn a few things about how to value companies and if you're really disciplined about waiting for great opportunities (with the proper margin of safety) and letting undervalued prices turn rational again, the math is on your side. Picking a good stock is very similar to buying into a good business.

Here's a great Derek Sivers comment:

http://news.ycombinator.com/item?id=1157768

I'm sure a bit of stock picking isn't going to kill you, as long as your portfolio is mostly passive. (Every time this discussion comes up, someone points out Malkiel picks a few stocks for himself).

On the other hand, there is a whole financial industry lined up more or less directly against your interests in picking stocks; they have better research, direct access to company principals, influence over the markets, a drastically lower cost of trading, and the ability to wait out irrational conditions far longer than you can stay liquid.

I'm doing what Sivers suggested; it makes sense to me.

On the other hand, I've been telling a friend of mine to stop investing Apple since, oh, 2006. So, grain of salt.

Note however that the choice between "smart investing" and "hyperactive investing" is a false dilemma. Timing the market and worrying about technical analysis is definitely a way to lose money to traders with quicker access to information and greater ability to profit from arbitrage. Solin's comments on the marketplace of financial experts is right, but indexing isn't the only way to avoid that mess.

Sure, 80% of my portfolio is in a couple of indexes, but that other 20% I don't count as mad money. I don't make blind guesses; I'm very careful about where I put it. So far my strategy of five or six smart trades a year has paid off very well. That's hardly day trading.

I suspect the ratio of 80/20 will get change in favor of active investments as I get more confident.

If I don't understand the company or the industry, or if it's a coinflip either way of being undervalued, I move on.

As a concrete example, I have a pretty good idea of what Apple makes and where it can sell and where it might go in the future, but I don't believe it can keep up the 30% returns on invested cash rate for the next ten years. I don't buy it.

Maybe I'm wrong in that case, but my backtests work even with eyeballing numbers.

Now, to find my own Chipotle for 2012...