The Stock Pick That Tanked

Just the other day, I was on a date. She asked me about my hobbies.

“I got into barefoot shoes recently,” I say.

“Oh those vibram five-finger toe shoes?” she asks. I explain that it usually just means wide toe-box and flexible sole. I flex my foot in my sandals to demonstrate. That’s not my only hobby though! I’ve also been teaching the new kitten to sit, high-five, and wave. Lots of people are more surprised by this than I expect. I’m starting to wonder if retirement has made me a little kooky. In an effort to temper that impression, I mention I also write a blog. That’s normal, right?

“Oh, what is your blog about?”

“Finance.”

“Oh so you’re a Finance Bro.”

“Yes!” We laugh. Then we fall silent. I notice that after the laugh, she looks a little concerned. Having experienced preachifying Finance Bros in the past, I rush to remedy. I wonder if she’s considering bolting before I start lecturing about crypto or NFTs.

“I don’t write about stock-picking or anything like that,” I clarify. “It’s mostly real life stories about how I manage my money.” She seems palpably relieved. With that out of the way, we change gears to talk about how she got into riding dirt bikes.

The funny thing about that conversation, though, is that I do want to write about stock-picking. Because that morning, I had checked in on my portfolio. I finally got around to calling old 401k institutions to rollover the funds from old workplaces into a Traditional 401k. When I scrolled through my accounts, one stock caught my eye. I saw it and laughed.

What Stock Should I Pick?

Flashback to 2020. The pandemic struck and we were all home. I started walking daily on a fake “commute” to get myself ready for sitting at my desk all day. During my walk, I’d listen to various podcasts. I’d walk along the river listening to Office Ladies, where Jenna and Angela talk about their experience filming The Office. I’d listen to Wait, Wait, Don’t tell me! while peering in the forest to count deer. And of course I’d pop on a finance podcast like ChooseFI or BiggerPockets.

One thing the podcasts had in common were their sponsors. During ad breaks, hosts would promote the same list of companies, including BetterHelp, an online provider of mental health services. Please tell me I’m not alone in hearing a million ads for the same podcast advertisers?

I’d never stock-picked before. I had my money squirreled away in VTSAX and a couple other mutual funds. But here was my opportunity. Surely we’d all be pivoting to online health care. I’d already sent a photo of a concerning mark on my skin to a friend in dermatology. I met my therapist over Zoom. Surely the need for it would only increase. (Spoiler: I should have picked Zoom).

I Made My Pick! Online Healthcare!

I only wanted to invest in stocks with money I was ready to lose. But I wanted to try it, just for funsies.

I invested $1000 in Teladoc, the parent company of BetterHelp.

Thankfully I invested with the caveat that it was my “gambling” money. Otherwise I would have done a spit-take. The $1000 I originally invested is now a paltry $34.90. It went down by a whopping 95% from a high of $294.54 in February 2021 to around $14 this April.

My investment 🙁

I mean, it’s not fun to essentially flush a grand down the drain. Good thing stock-picking is not my day job. Of course I wasn’t the only one projecting that online mental health would go big. That’s why there’s a big spike for a year. I bet some folks predicted it, bought in, and got out right at that nice peak in 2021. Unfortunately I’m a buy-and-hold girly, so I got to ride this one like it was Elitches’ Tower of Doom.

One Good Pick Doesn’t Convince Me Either

Look, my pick was stunningly bad. It was a great knock-on-the-head lesson to reinforce all I had read about the dire results of stock picking. But just because I made one bad pick, why should that influence what anyone else does?

Well, because the opposite is true too. Just because some people, or you yourself, make some good stock picks, that doesn’t mean you should keep stock picking either.

While I have my story about Teladoc, my partner has his own story about AMD. His dad offered him and each of his siblings $1,000 to invest how they will. He wanted them to learn about investing in the market.

“I was into gaming and bitcoin, and AMD was up and coming. NVIDIA was the alternate option and their stock was like $200 a share, so I could only get a couple. So I picked AMD because I had an AMD card and I liked that it seemed to have more room to grow.” – my partner

You may have even heard about the epic growth of AMD. Sometimes we’d be sitting together and he’d Google how it was doing. We always saw it in green. If we ever talked finance with other people, they’d be impressed with his foresight. Meanwhile my stock pick plummeted into red.

When he bought it, AMD was $14 a share, and had massive growth since his original purchase. Upon writing, AMD is $149.10 a share! I’ve also had friends invest in Amazon, Apple, and Tesla at the right times. These bets sometimes pay off, but just like in gambling, it makes you want to keep going when the best thing to do is quit while you’re ahead.

One Bad Pick Is Enough For Me

JP Morgan reported that average annual returns from 2001 to 2020 were far better for index fund investors than day traders. The average stock-picker had an average annual return of 2.9%, compared to the S&P 500 which returned 7.5%. Even a simple portfolio with 60% stocks and 40% bonds returned 6.4%.

Even those who time buying and selling have to do it consistently to be part of the 7% minority stock-pickers who manage to outperform the market.

To be a successful day trader, you have to have picks that balance out the tankers. The problem is that most funds underperform. This means that a few of the top companies bolster the market as a whole. But you’ll have to be psychic or extraordinarily lucky to identify them on your own. Most managers of funds underperform the market. Meanwhile, index funds that track the market as a whole have a diversified range that means it is more likely to have stake in companies that bolster the lot.

One good pick like AMD can really tickle those dopamine receptors. With the rush of striking gold, it’s tempting to try again. The reality is that we both went off of hunches, and his was a better hunch. You have to have a lot of good hunches to make a winning portfolio. You will also need the confidence of a gambler who thinks they can outplay the house. And the delusion that you’ll be the outlier over time.

Investing Is A Long Game

Ultimately, the numbers show it’s best to stick to low-cost index investing. I’m very glad that most of my money was in a low-cost, low-fee fund like VTSAX over the last decade. If you do want to dip your toes into picking individual stocks, treat it like gambling. Only play with what you’re willing to lose. If you win, good job, but the game is rigged. If you lose, good try, but the game is rigged.

And I’m not just saying that because my pick was the one that tanked. Avoid stock picking because it’s genuinely not worth your time and energy. The successful investor will ironically spend less time “actively investing”. The key is passive investing and active living life. Be like me: pick a low-cost index fund, then pick a kooky hobby. That way you’ll have something to talk about on dates — no Finance Bro (TM) hot stock tips necessary.