This post is going to have two versions:
Version 1: Completely I wrote with errors and mistakes. It’s the version like eating straight up without any plating and enjoying it as is.
Version 2: Polished with AI for the ease of consumption. You know the same food when it’s served in a nice plate that makes it look good over eating it stright in the kitchen.
Pick whatever version works for you or read it all because I’m not going to be judgemental.
Before we begin there has to be an image because I’m a sucker for early morning sunrise and the cold breeze on the face. Ah - what a beautiful country we live in.
Version 1: Authentic as usual
Why we don’t do stock picking
This is what is stock trading is.
Fundamentally speaking we are trying to find a loop hole where the value of a stock is cheaper to what could it be in the future so we could pocket the difference and earn from it. That is buy low and sell high.
We all have to acknowledge that the market price for the $ value on the stock comes from various scenarios that it very hard to predict. Like the sentiment, the product launch, the management under the organisation, the confidence of them being able to deliver, the person who is holding the stock for a while with their specific interests and goals, like so many parameters - it’s literally very hard to narrow it down to fit it into a basket of checklist.
Now let’s assume we got that all right the fundamental questions will remain as
1. How do we size that - like how much capital should we invest in? How much is the weightage of the company compared to the 1000s of companies that are traded in the globe and how does that compare against our own individual circumstances and our risk profile?
2. How do we determine that this is the best time to enter? DCA, low point and also other flavours
3. How do we determine this is the best time to exit? Tax implications, glued to the screen and market moves. How do we know how high is too high for that stock to go?
Let’s assume somehow we figured this all out and identified Tesla is the next best company to invest in because they are doing humanoid robots and cool shit.
And we invest our capital in with all of hope and anticipation.
And God forbid let’s say something happens to Elon - then imagine who is the successor for him ? like no one or I don’t know if there is even one. Now let’s think how would market react to such a news.
Stocks will plummet to 30 to 50% if not more. And for every percentage lost - there will have to be double the gains if it has to come up.
If a stock goes down by 50% - it needs to gain 100% for it to make it to break even.
So, do I say individual stock picking is not right? My answer to that is I’ve found out that for me - it’s not worth it as I’ve learnt hard way that it’s not effective use of my time and also I can’t be always glued to the news, Market moves as it’s only sometimes spray and pray and it just an opportunity to experience different types of human emotions from fear to greed to euphoria to deep scars of pain and suffering and adrenaline rush in seeing the screens with paper vale of highs and lows without.
So, I’ll stick to tried and tested pick all the horses in the race via ETFs, invest for a long time - not be bothered about market doing it’s gloom and doom and stick to the boring basics.
Version 2: AI Polished
A few years ago, a friend of mine — let’s call him Arjun — told me he had found the next Tesla.
I remember the excitement in his voice.
He had been researching the company for a few weeks. He had read about what they were building, watched interviews with the CEO, gone through the financials and, like most of us do when we get really interested in a stock, probably spent far too much time reading what complete strangers on Reddit thought about it.
But he wasn’t just excited.
He was convinced.
“This is going to be huge,” he said.
I’ve been there.
That feeling when we discover a company and start connecting the dots in our head is actually quite addictive.
The market hasn’t figured it out yet.
But we have.
We see where the industry is going. We see what the product could become. We see the opportunity that everyone else seems to be missing.
And that’s probably the attraction of stock picking in the first place.
We’re trying to find something today that is worth more tomorrow.
Buy at $100.
Sell at $200.
Keep the $100 difference.
Simple enough.
Only if it were that simple.
Because the moment we buy the stock, we realise we’re not just betting on whether the company is good.
We’re betting on a whole bunch of other things as well.
Will the next product launch work?
Will management execute?
Will the CEO make the right decisions?
Will competitors catch up?
Will interest rates change?
Will customers actually buy what the company is building?
Will investors continue to believe the story?
And then there are all the things we have absolutely no way of knowing.
Someone somewhere in the world might be selling the stock because they need the money for a house deposit.
Someone else might be buying because they think the company is about to announce something huge.
Both of them can be looking at exactly the same company and coming to completely different conclusions.
So we try to simplify it.
We build checklists.
Revenue growth.
Margins.
Debt.
P/E ratio.
Management.
Competitive advantage.
Market opportunity.
Everything looks great.
We’ve ticked all the boxes.
And then another question quietly appears.
How much do we actually put into it?
Say we have $100,000 invested.
We think this is a fantastic company.
Do we put $2,000 into it?
$10,000?
$25,000?
What if we are really convinced?
Do we put $50,000 into it?
That’s where it gets uncomfortable.
Because the company doesn’t know anything about our life.
It doesn’t know about our mortgage.
It doesn’t know about our kids.
It doesn’t know whether our job is secure.
It doesn’t know what else we own.
It doesn’t know how we would feel watching $50,000 turn into $30,000.
The company might be an amazing business.
But the question isn’t just whether it’s a good investment.
It’s whether it’s a good investment for us, at that size.
And then we have to decide when to buy.
Let’s say the stock is $100 and we think it is worth $200.
Do we buy now?
What if it falls to $80?
Maybe we should wait.
But what if it goes to $130 while we’re waiting?
So we buy a little.
Then it falls.
We buy some more.
Then it falls again.
“Great,” we tell ourselves.
“It’s cheaper.”
Until it falls enough that we stop feeling like a bargain hunter and start wondering whether we made a mistake.
I’ve done enough of this to know that there’s a big difference between buying the dip when we’re calm and buying the dip when we’re watching our portfolio fall every day.
And then, somehow, we eventually get it right.
The stock recovers.
$100.
$120.
$150.
Now we’re feeling pretty good.
We were right.
Then it reaches $200.
And that’s when the next problem arrives.
When do we sell?
Because $200 was our target.
But now that it’s actually there, we’re not sure.
What if it goes to $250?
What if it goes to $300?
What if we sell at $200 and the next morning it jumps 15%?
That one hurts.
And what if we hold because we think it has more to run, and it falls back to $140?
Then we start kicking ourselves for not selling.
There are taxes to think about.
There are future opportunities.
There is the question of whether the company is still fairly valued.
And somewhere in the middle of all this, we find ourselves checking the share price when we should probably be doing something else.
That’s the part I don’t think we talk about enough.
Stock picking isn’t just about picking a stock.
It’s about what happens to us after we pick it.
Arjun had bought his company because he believed in the future.
Then the future started arriving one headline at a time.
One earnings announcement.
One analyst downgrade.
One management interview.
One bad day in the market.
One good day.
And every little thing started to matter.
Then let’s imagine something completely unexpected happens.
Take Tesla.
We might believe in electric vehicles. We might believe in energy storage. We might think humanoid robots are going to be enormous. We might even believe Elon Musk is one of the few people capable of making some of those things happen.
But what happens if something suddenly happens to Elon?
We don’t even have to get into what.
The market would immediately start asking questions.
Who takes over?
Does the strategy change?
Will the engineers stay?
Will customers remain confident?
Will investors believe the story in the same way?
Nobody has to know the answer.
They just have to be unsure.
And the market can be very unforgiving when it becomes unsure.
Let’s say our $100 stock falls 30%.
We’re now at $70.
We might look at it and think, “It’s only down 30%.”
But to get from $70 back to $100, the stock needs to rise about 43%.
If it falls 50%, from $100 to $50, we need a 100% return just to get back to where we started.
That’s the strange maths of investing.
The numbers on the way down and the way up don’t quite behave the way our brain expects them to.
And Arjun would have to live through all of that.
That’s what I started thinking about.
Not whether Arjun had picked a good company.
Maybe he had.
Not whether the stock eventually went up.
Maybe it did.
But whether all the attention, emotion and mental energy that came with owning it was actually worth it.
Because I know what happens to me when I get too interested in something.
I start checking.
Then I start reading.
Then I start looking for confirmation that I’m right.
A positive article makes me feel good.
A negative article makes me question everything.
The stock goes up 8% and suddenly I feel like I know what I’m doing.
It drops 12% and I’m back questioning my entire thesis.
And the funny thing is, nothing has actually changed in my life.
The kids are still at school.
Dinner still needs to be made.
The mortgage is still there.
Work starts at the same time tomorrow.
But somehow my mood has changed because a number on a screen moved.
That’s when I started asking myself a slightly different question.
Maybe the question isn’t:
“Can I pick the next winner?”
Maybe it’s:
“Do I really need to?”
That’s where index investing started making more sense to me.
Not because I think individual stocks are bad.
They’re not.
There are people who are brilliant at analysing companies and picking stocks. Some people genuinely enjoy it. They have the temperament for it, the knowledge for it and, importantly, the patience to sit through the inevitable periods when they’re wrong.
I’m just not sure I’m one of them.
And I’ve realised that I’m okay with that.
If I buy an index, I don’t have to figure out which one of the thousands of companies around the world is going to be the next big winner.
I’ll own some of the winners.
I’ll own some of the companies that go nowhere.
I’ll own some that disappear.
And I’ll probably miss the spectacular returns from the one company that goes 20x.
That’s okay.
Because I’m also not betting my future on knowing which one it will be.
And perhaps the biggest benefit for me isn’t even diversification.
It’s that I get my attention back.
I can invest the money.
Close the app.
Go for a walk.
Take the kids somewhere.
Get on with work.
Sleep.
And come back to it later.
There is something quite freeing about not needing to know what the market is going to do tomorrow.
I still enjoy reading about companies.
I still get tempted when I hear about some amazing new business doing something that sounds like it will change the world.
And every now and then, I still think:
“Maybe this is the one.”
Maybe it is.
Arjun might even have been right about his stock.
That’s not really the point.
The point is that I’ve learnt that being right about the company is only the beginning.
We then have to be right about how much to invest.
When to buy.
When to buy more.
When to stop.
When to sell.
And, perhaps most importantly, how to behave when everything goes completely differently from what we expected.
That’s a lot of things to get right.
So I’ve made peace with something that I probably wouldn’t have said a few years ago.
I don’t need to pick the winner.
I don’t even need to know who the winner will be.
I just want to own enough of the game to participate in the upside...
without spending my life watching the scoreboard.
Only if I could do all of that without thinking about it every day.
For me, that’s the part that matters.