Buying individual stocks is a risky and complicated business in a volatile market, which is the new normal.
Thanks to globalization, the stock market and individual stocks are subjected to influences far beyond the U.S. borders. Global competition and global economic factors can play a big role in the price of many U.S. stocks and stock markets.
For example, 46% plus of the revenue of the S&P 500 comes from global business, meaning those dollars were earned in foreign markets. Foreign markets face many of the same competitive factors as domestic markets, however, when you throw in currency differences, political and economic instability along with other factors unique to particular foreign markets, confidence in future earnings is challenged.
These additional factors make evaluating stocks (already a complicated process) complicated. You may be able to determine what a company is worth, but factors that have nothing to do with that analysis may change the price radically.
Buying a stock at the "right" price may be the single most important determinant in whether it earns you a profit or not and how long it will take that profit to develop.
In most cases, you should avoid trying to "out trade the traders" on Wall Street. You are up against the "best and brightest" traders in the business and some times those traders aren't even human, but computerized trading systems.
You are no match for high-frequency traders that use systems, which buy and sell stocks in matter of seconds and with huge volumes.
Do some small, independent traders make money? Of course, there are always small traders who are successful. However, for every small trader who is successful, there are 99 who aren't (my estimate) over the long run.
Should you invest in individual stocks (as opposed to mutual funds where professionals do the hard work for you – for a fee)? If you are willing to spend the time doing your homework and are patient when waiting for the right price, individual stocks offer great potential.
If you think you can intuitively figure out the market and base your trades on your feel for stocks, save yourself some time and just send me your investing dollars or buy lottery tickets – the results will be about the same.