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What a Mutual Fund Can not Provide You

Stock vs Mutual funds

Are you looking for something that you want to commit to? Something that provides a real business engagement, than you should invest in stock.

Mutual funds are great. They help you spread your risk. They provide rest overnight. You can buy-and-hold them for years or trade them actively. They also give you a wide variety of flavors like a country or regional focus, a sector orientation, a commodity approach and even (high yield) bonds or hedge choices. However, they are always one step away from the real action.

This starts with the price and value of both. Stocks do not only have a price, they are also (under and over) valued. The value of a stock can be calculated and this value gives the rational investor some indication of the risk he or she takes, when buying the security. The value of a fund is hardly to be determined or at least less visible for the private investor.

More important is that stocks represent real companies. The moment you buy a stock, you have a STAKE in a company. If you want to know what the search engine business is going to do in the future, you should first have bought Google or Yahoo or even Microsoft. One share is enough to let you FEEL what is going on in the market and the what choices that company takes (for the stock) to grow.

The engagement starts the moment you buy the stock. Next steps follow from there; your interest in the company will increase, you will read more about the activities the firm undertakes and what the strategy is. In the mean time the price of the stock in your portfolio changes. Then there comes the moment – once the stock is underperforming against the market – on which you should decide; do I keep it or do I sell in search for a better one?

There are Technical (Analysis) tools that could help you take those decisions. They help you to diminish you personal (emotional) commitment to that one-and-only company and help you search for better alternatives. After which you could end up with a new or different stock in your portfolio. And with that a new opportunity to gain interest in the company behind the stock.

© 2005 Hans Bool / Astor White

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