Summary

Warren Buffett and Dave Ramsey advise against investing in individual stocks, recommending low-cost index funds like the S&P 500 for the average investor.

Abstract

The article emphasizes the wisdom of investing in low-cost index funds over individual stocks, as advised by investing legends Warren Buffett and Dave Ramsey. Buffett, known for his stock-picking prowess, suggests that most individuals lack the ability to successfully select stocks and should instead opt for a diversified approach through index funds. This sentiment is echoed by Dave Ramsey, who cautions against the high risk associated with single stock investments. The author of the article, who follows this advice, has decided to steer clear of individual stocks due to personal lack of significant returns, nervousness leading to rash decisions, and insufficient monitoring of stock performance. The article concludes by reinforcing the experts' advice and the author's personal reasons for avoiding single stock investments.

Opinions

The author agrees with Warren Buffett's advice against individual stock picking for the average person, advocating for investment in low-cost index funds.
Buffett is cited as believing that most people cannot effectively pick stocks, despite his own reputation as a master stock picker.
Dave Ramsey's opinion is also highlighted, warning that individual stock investments are too risky and can lead to significant losses.
The author personally does not invest in individual stocks, citing a lack of success, nervousness, and lack of engagement with the stock market as reasons.
The article suggests that even with the current stock market boom, it's unwise to rely on any stock-picking system due to the inherent risks and volatility.
Amy Morin's advice, as quoted in the article, reinforces the importance of taking advice from individuals with proven expertise, such as Buffett and Ramsey.
The author explicitly states their stance against investing in individual stocks and encourages readers to consider the advice of financial experts.

Buffet says: Don’t Buy Individual Stocks.

And I agree.

Photo by Patrick Weissenberger on Unsplash

I just got a note from one of my followers that commented on one of my stories. He was intrigued that I do not invest in individual stocks.

Getting into the stock market game right now can be so tempting. In fact, just about anyone buying stocks right now is making money. Hey, the market is on fire lately. Don’t be overly confident of whatever stock-picking system you are using right now, because just about any stock-picking system is going to be making money right now.

It may be a surprise to many that Warren Buffett, one of the greatest stock pickers of all time, also recommends that the average Joe who wants to get into the game of stocks suggests not to buy them, at least not to buy an individual stock, but to buy a low-cost index fund.

A Piece of Buffett Wisdom — Don’t Buy Stocks

Here is Buffett’s quote, short and sweet, from the 2021 annual Berkshire Hathaway shareholder meeting:

I do not think the average person can pick stocks.

— Warren Buffett

Ok, that is a sermon in a sentence. So what does Buffett recommend investing in instead?

In the same meeting Buffett said this:

“I recommend the S&P 500 index fund, and have for a long, long time to people.” — Warren Buffett

In case you don’t know what the S&P 500 is here is a definition that comes from Investopedia.

“The S&P 500 Index contains 500 of the largest stocks that trade on the New York Stock Exchange (NYSE) and Nasdaq, making it a tool to gauge the overall health of large American companies. The S&P 500 is probably the single most popular equity index in the world and is used as a performance benchmark for a variety of mutual funds, ETFs, and other assets and securities.”

And here is one more nugget of wisdom from the Oracle of Omaha:

“By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”

— Warren Buffett

Where Does That Leave Us?

So let’s think about this. Here we have a guy, Buffett, worth about 110 billion dollars. The man has made his money in the stock market. He is an expert, there are no questions about his skills. He has a proven track record. The man is incredibly talented in the area of finding undervalued stock in the publicly traded market. And he is giving us some fairly specific advice. So what should we do?

Amy Morin, writing for Forbs, wrote an article called “The 3 People You Should Actually Take Advice From.” I think we might want to take her advice related to those we should take advice from (repetition of the word “advice” was done on purpose to attract attention, there is probably a word for that but I don't know what it is. A word that means to repeat for the sake of grabbing attention. I am trying to grab your attention here is all I am saying :-). Here is what she said:

“[Take Advice from] people with clear expertise.

It’s easy for spectators to criticize your work [ or investment strategies], but their opinions shouldn’t hold much value if they aren’t in the ring with you. Look for a successful person with proven expertise.

Whether it’s a formal mentor or a kind stranger, be curious about the strategies successful people find helpful. Ask questions and listen more than you speak. You can learn a lot from people who understand the obstacles you face.”

— Amy Morin for FORBES.com (emphasis added)

Buffett is an expert. I am taking his advice.

I don’t buy individual stocks.
End of story…
End of blogpost…
End of message…

What else can I say?

Well, maybe just one more thing. Here is a quote from Dave Ramsey, another financial guru that I love to follow and read about. Here is what he said. Again, very short and sweet…

“I don’t play around with single stocks. There’s just too much risk there for me. Because I don’t invest in single stocks, I don’t recommend others do it, either.”

— Dave Ramsey

And just one more from Ramsey:

“If you buy individual stocks they will hand you your head on a platter.”

— Dave Ramsey

Now, what you do with your money and how you invest it is up to you. But I hope I have made my position abundantly clear. No individual stocks for this little boy.

Let me summarize why I do not invest in individual stocks (this comes from an earlier post, see the start of this article for the link)…

I am moving away from single stocks for several reasons.

I have never made any significant wealth with single stock investments.
I don’t have the stomach for it. I am too nervous and often act rashly.
I don’t follow my stocks enough for me to warrant single-stock investments.

Ok, at last, I think that is all I have to say.

All the best to you… Max