Should You Buy Individual Stocks or Stick to Mutual Funds?

Even better would be to own a few of the top performers not in the S&P 500 — such as Tesla (TSLA), up 598.9 percent, and vaccine maker Moderna (MRNA), up 620.9 percent. Tesla, by the way, is the sixth-most-valuable U.S. stock. The company’s stock will be admitted to the S&P 500 on Dec. 21. Of course, at the start of the year, Corona was associated more with a beer than a pandemic, and Zoom was something you did with your camera.

In addition to much else, 2020 was certainly the poster year for unpredictability. And unpredictability can make picking stocks pretty thrilling — which, admittedly, is a feeling to which I’m not immune. Beneath my dull exterior of an index investor beats the heart of the Gambler. Even I get the occasional urge to buy that risky stock and get those spectacular returns, and sometimes I just can’t resist acting on my thrill-seeking urges.

That’s why I carve out a small piece of my portfolio for, perhaps, the only fun I have in investing. I call it my gambling portfolio.

My rules

Now, everybody should have a personal system to outsmart the market. My own belief is that buying one of these stocks after a spectacular gain is following the herd and doesn’t end well. Though I don’t tell people what they should buy, I do give them rules.

My system is buying stocks that have fallen from grace and that I think have about a 50-50 chance of going bankrupt.

Companies shunned by Wall Street can often end up performing not as badly as expected, and the stock price rises if the company exceeds the Street’s low expectations. It’s very risky, I’ll admit, but I think it’s better than being part of the herd following TV gurus or buying a stock after a spectacular return.

I’m always happy to talk about my winners, such as Priceline (now Booking), IBM and, more recently, GE (so far, anyway), though I conveniently block out my purchases of United Airlines, Delta Airlines, Eastman Kodak and others that didn’t make it or are looking rather bleak.

How has it worked? In my emotional mind, the Gambler convinces me that I have kicked market booty with the returns I’ve received. I don’t really care what my logical mind says because, you know, this is supposed to be fun. I could easily go back and evaluate my return versus the market, but why do that? I prefer to keep my parade unrained on.