Buy and Ignore?

As some of you might remember, I got onto an investing kick shortly after I finished my MBA, hoping to put my new degree to work. In all I bought 7 different stocks over a couple of years. For a variety of reasons, partly my own and partly the economy’s, most of my investments haven’t done all that well, even when compared to the market overall.

It’s important to gauge your investments’ performance against the market, generally as measured by the S&P 500 index. Why? Because if your investments aren’t beating the market, you’d be better off putting that money into an index fund instead. Many analysts believe it’s impossible to beat the market in the long run. Warren Buffett disagrees, but I don’t have his financial savvy. Despite all my research, my stocks have underperformed. Apple and Honda are my exceptions.

I used a buy-and-hold philosophy as my foundation. I picked companies that looked promising, bought shares, and waited, planning to hold them for years. Unfortunately, my approach could be more accurately described as buy and ignore. Once the market began to crumble, I fearfully closed my eyes and tried not to panic as I waited out the storm. It wasn’t necessarily a bad approach due to my long-term outlook, but it wasn’t necessarily good, either. By mostly ignoring my companies, I missed the fact that some of them were underperforming the market, reporting bad news, and taking a nosedive in price that I didn’t have to absorb.

Sobered by the market’s turmoil and humbled by the disappointing performance of many of my own picks, I want to change my approach. Although some people succeed at it (Shipman, perhaps?), maybe I’m not smart enough to analyze financial data alone and predict the future. The only two companies whose stock has held its own during the storm, Apple and Honda, had two things in common: 1) strong financials, and 2) I actually used and loved their products and understood their place in the consumer world. My new plan includes the following:

  1. When buying stock, buy companies that I actually like and patronize rather than obscure ones that I’ve never heard of and don’t understand.
  2. Allocate part of my holdings into a market index fund at some point.
  3. Find a new broker. I’ve been using Fidelity, which I’ve enjoyed except for the $19.95 commission they charge on every trade. Since I don’t trade much, I was willing to accept it, but now there are many brokers that charge much less., for example, charges a flat rate of $2.95 per stock trade.

Enough about me – I’d love to hear from you. If you invest, what is your approach? Which broker do you use? Do you like them?