Little stocks everywhere 🔥

TLDR: A little stock in everything > a lot of stock in one thing

According to a recent survey, only 26% of American women invest in the stock market. And this is a huge problem, because a woman who earns a salary of $50K a year but never invests will lose hundreds of thousands of dollars over the course of her life simply by not investing. The investing gap is kind of a big deal, and we need to start talking about it more.

I was talking to a friend last week about the work that I do with women. “But how can you give people advice about what stocks to choose? Where did you learn?”

I love this question, because to me it highlights a major misconception about the stock market that is so incredibly common.

I’m not advising anybody on what stocks to choose. And I have zero interest in doing this because stock picking doesn’t work.

And don’t just take it from me — listen to Warren Buffet, widely considered to be one of the best investors in the world. Here’s his adviceon how to invest: “Just buy an S&P index fund and sit for the next 50 years.”

What does stock picking even mean?

Stock picking is when you literally choose which individual stocks you want to invest your money into.

What’s the alternative?

Instead of picking individual stocks, you can invest in an index or mutual fund. A fund is like a big basket filled with lots of little stocks everywhere. Instead of putting all your money behind one investment, you put a little of your money behind a bunch of investments.

I’m still confused.

Let me break it down super simply for you. Let’s say you walk up to a food court in the mall with about 20 different restaurants. You know you want to invest $100 in this food court, but you’re not sure which restaurant to invest it in. You check out each restaurant and you carefully take notes, trying desperately to figure out which restaurant to invest your money in.

You might ask yourself a million questions like, “which restaurant has the best food?” or “which restaurant has the best staff?” or “which restaurant is likely to make the most money?”

You spend hours and hours deliberating over all of your options and then you finally land on a sandwich shop because you think their food is delicious, they have good service, you saw that they had the longest line each time you visited the food court, and you believe sandwiches are a delicacy people will always be excited to enjoy.

In this scenario, you invest all one-hundred of your dollars into this sandwich shop. You are effectively stock picking. The next week, a new sandwich shop opens up next door, virtually putting the original one out of business. Your $100 stock in the original sandwich shop is basically worthless now because the people have spoken and they have decided that this new shop is the more valuable one (stock prices are literally based on public perception of how valuable that stock is).

Now, you’ve lost all of your money because you put all of your eggs in one basket aka you stock picked.