So very like Spinoza himself, who locked himself up with Aristotle and Maimonides before coming out with his great works, Baruch has been consulting ancient texts; in this case, the books of Peter Lynch, especially the all time classic One up on Wall Street. Lynch of course was and is famous for his advice to his readers to invest directly in single stocks, to “buy and hold”, in the parlance. This is now a heretical doctrine, but Baruch thinks its time has come. Or rather, come again.
So let’s say it: I think the best thing for moderate net worth retail investors to consider right now is to take their retirement account back into their own hands. I think people should start to do some research with the aim of buying 3 to 5 single stocks, maybe just as an experiment. And if the experience is good, they can do it, and they gain expertise, they should make single stocks a big chunk, say 1/3 or more, of their retirement account in the next 10 years.
Not many people in the econoblogosphere and beyond will tell you that this is a good thing to do, not least because in many cases it is them and their ilk you have been outsourcing it to all these years.* Even those who don’t have an axe to grind will likely be mildly horrified by such advice. Take Felix; a couple months ago he wrote:
we don’t want . . . a world where most companies are owned by a small group of global plutocrats, living off the labor of the rest of us. Much better that as many Americans as possible share in the prosperity of the country as a whole by being able to invest in the stock market.
Right on, Felix! And of course, the best way of guaranteeing this is surely by having Americans (why only Americans?) invest directly in stocks!
Well actually no. Felix hurries to reassure us in his very next line
I’m not saying that individual investors should go out and start picking individual stocks.
Felix is clearly aware where his train of thought is leading, and is keen to retain his position as a prominent econo-blogger who is taken seriously. Telling people to pick individual stocks, however, is clearly the path to ridicule.
For a more concrete list of conventional wisdom on the main reasons not to own stocks look no further than this post by James Altucher, which is misconceived on so many levels it is hard to know where to start, but makes up for this by at least being entertaining.
Let us pity the mid size retail investor — the ones with enough capital that it matters, but not enough to get access to pre IPO Facebook stock. They are the battery hens of the financial service industry, on the receiving end of the least bespoke and the most exploitative service available. These guys get a lot of advice, much of it worthless, and all of it conflicting; they are the key demographic for most of the for-money blogs, newsmedia, and the Old Man newsletters (as Josh at TRB puts it so well). If you are one of this accursed, confounded and confused group, a forgiveable reaction is to put your fate in the hands of a retail broker at e.g. Merrill Lynch or UBS. Knowing your luck, you’ll end up in a range of very reasonable sounding knock-in/knock out structured products you barely understand. They’ll have you picking up the nickels in front of the steamrollers that catch up with us every 5 to 10 years, charging a hidden 2% load for the privilege of eventually blowing you up.
The gift of Peter Lynch, if you play your cards right, if you make the right mental breakthroughs, is that you can leave all the babble behind. With practice and dedication, and a supreme act of will, you can tune it out and make it irrelevant. The main reason very few people will urge you to do this is that there is not a lot of money in it for them and you may stop reading their blog. Taking charge of one’s own investment future, if you can, is simply much more rational than handing it over to the mishmash of conflicting incentives that is the financial services industry. It’s not unthinkable; it’s the logical thing to do!