When to Buy Stocks Directly

An offer that most investors should refuse

John Rekenthaler, CFA 26 June, 2020 | 1:49AM

Target

Opening Salvo
Last week, Morningstar's Christine Benz wrote that buying individual stocks was a "TERRIBLE way to begin investing." (All caps, Christine?) Not all readers agreed with her, but as their main counterargument was that losing money teaches novice investors a valuable lesson, their defense seems questionable. Surely there are better ways to learn that fires burn than to put one's hand into a flame.

Besides opportunity cost, the young investor who starts with stocks courts the danger of performing so badly as to become disillusioned, thereby abandoning equities. As Mark Twain said, a cat that jumps on a hot stove will never make that mistake again--but neither will it jump on a cold one. No such worry when buying a diversified fund, when the greatest concern tends to be stifling a yawn.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Hertz Global Holdings Inc1.45 USD-2.03

About Author

John Rekenthaler, CFA  John Rekenthaler is Vice President of Research for Morningstar.

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