Should you invest in stocks directly, instead of mutual funds?

Author
Anmol Gupta

Instead of investing in mutual funds, investing directly in stocks seems like such a wonderful idea - you have to watch the companies that are doing well, and buy their stocks, right?

But let us tell you, investing in stocks is a lot more complicated than it seems, and here’s why:

Investing in stocks requires a lot of research.

If you are thinking, that you will only buy the stocks of companies that are doing well, you have taken the first step of making a big financial mistake.

First off, for example, you might think that you will buy the stocks of Apple (AAPL), because:

  • It’s quite a large and successful company.
  • Apple’s future is obviously great.

But here’s why buying stocks of Apple may prove to be a wrong decision:

  • Apple is already quite a large and very successful company, and so, it’s chances to grow even more, are quite slim. Apple’s stock (AAPL), in last year’s February, was priced at $164.34, and this year in February, it’s priced at, $170.89. So, that shows growth of almost $6.5 in a course of a year.
  • There have been instances when Apple’s stock (AAPL), went lower than $164.34, and in that situation, you might’ve freaked out and panic-sold the stocks, selling them at a lower price.
  • But then again, it also could’ve been possible that Apple’s stock (AAPL), went lower and lower, and you never sold it - because, it may go up.

And hence, only an expert will know, when to buy the stocks, and when to sell; and only an expert will know, which company's stocks are worth buying.

It may not be the best idea to buy stocks of large companies.

Whilst buying the stocks, you do not focus on ‘which companies are “doing well”’, but instead you focus on ‘which companies “might” do well”.

And thus, you shouldn’t buy stocks, just by looking at the past records.

Let’s take a look at another large company - Tata Motors.

People, in 2018, may have thought that they should buy the stocks of Tata Motors (TATAMOTORS), because:

  • It’s quite a large and successful company.
  • Tata’s future is obviously great.


But here’s why buying stocks of Tata proved to be a wrong decision: Again, Tata Motors is already quite a large and very successful company, and so, it’s chances to grow even more, are quite slim. Tata’s stock (TATAMOTORS), has seen steady growth since 2015, reaching the price of Rs.503, at one point. But in the past year, Tata Motors’ stocks came tumbling down, reaching its lowest in 4 years, i.e. Rs.150 per stock.

And hence, you shouldn’t buy the stocks, just by looking at the past records.

The company, that you are buying stocks of, you need to know that company, inside out. You need to know, what are the company’s future plans, who is in the management, does management have the potential to achieve the future plan, is their future plan even going to work, and what-not.

And it’s not just about knowing a company, it’s about knowing the financial markets as well.

Buying and selling stocks is not as easy as you may think it is.

Just like a doctor studies for years, understanding the human body - an expert in stocks too, has spent years, learning how the stock market works - what to buy, when to buy, what to sell, and when to sell.

If you think that reading a couple of articles on the internet, will make you a stock market expert, you might as well think, that after reading a couple of articles on the internet about human body and medicines, a person will become a doctor.

So, should you invest in stocks directly, instead of mutual funds.

No, you should not invest in stocks directly, unless you are an expert in the field.

The people who manage Mutual Funds are experts in their fields. They take money i.e. collect funds, from people like us, who do not know the financial markets well, and create a ‘Mutual Fund’, and then invest your money, in many different things (including the stocks) and then, profits come in.

If you are not an expert in the financial market - DO NOT buy stocks, unless you WANT to LOSE MONEY.

Invest in mutual funds, and let experts take care.

Happy Investing.












About the Author
Anmol Gupta
Anmol is CEO at 7Prosper. He is SEBI Registered Investment Adviser, with expertise in Finance and Technology domains. Anmol is committed to help people achieve their financial freedom.

Learn More