[crazygringo]

Actually I think this is huge, not for existing investors but precisely for people who aren't.

For a teenager who wants to invest $100 to "dip their toes in" when a share of Amazon is over $1,700?!?! And Google over $1,300?

Back in the days when stock regularly split it wasn't a big issue. But now that a bunch of companies think it's somehow unfashionable to split their stock (e.g. Amazon and Google), all this does is exclude smaller investors. Fractional shares solves this problem.

A single share of stock shouldn't cost more than a MacBook, sheesh.

[skybrian]

Do we want to encourage teenagers to buy stock in individual companies? Index funds I could see.

[georgeecollins]

I set up a small custodial account that my teenager can trade stocks in. Yes, I know it is smarter to invest in ETFs.. Buying an individual stock gives a kid a reason to read balance sheet, a P&L, understand what a dividend is, a share is, and so forth. Also, he learns what risk feels like, that it is really hard to outsmart the market. Better to do these things with small amounts of money.

So yeah, I do want to encourage my teenager to buy stock in individual companies. Mostly because he doesn't have a lot of money to lose, and its a great way to learn.

[travisjungroth]

What if he wins? A common thread among gambling addicts is a large win at a young age. It’s not that unlikely that he will beat the market during his most formative years and you will have taught him the opposite of what you intended.

[georgeecollins]

He's still a kid and he could only invest under my supervision. It is a small amount of money and he is not going on the margin. If he kept doing great year over year I would let him keep going.

Here's what really happened: He bought a bunch of kooky stocks because he "liked the name". That did predictably terribly. Then he bought a couple blue chip companies, lost interest and drifted into the black. If you buy individual stocks and hold them, on average you will make money. You would usually do better with an ETF too. I think it was a good lesson that patience is better than trying to outsmart markets.

[Ambele]

I can't speak for others but I can share one anecdotal experience by sharing my story.

I started investing in middle school when the social studies teacher enrolled all of his classrooms into a virtual stock market simulation. Everyone starts with 100k, must own a minimum of 20 stocks on any given day, and tries to make the most within a set amount of weeks. Short-selling is included. I don't remember how well I did but I got an ornate Dominos Pizza gift certificate (which I never spent because it looked so beautiful) so I must have done well. That was 13 years ago. Today, I have a 40k Robinhood investment account which is enough for a home down payment and I plan to use it to buy a modest ~200k home in a few months.

I outperformed significantly in my early 3 years of investing with real money with a 38% return. However I have underperformed in the last 1 year and thus underperformed the market overall with an 18% overall (4-year) return not including dividends. This is because my favorite investment data app, StockGuru Pro, that cost $10 was discontinued and I don't have a suitable replacement (at all). I expect to underperform in the future unless I find a well-priced replacement or cough up the hundreds of dollars for better investment data. The ICE buyout of the NYSE has caused the price of market data to skyrocket which lead to that app's discontinuation.

The wins I experienced at a young age were very positive because it gave me a reason to save my money instead of spending it on all the things I wanted. Savings account interest rates of 0.01 to 2% interest isn't motivating at all to save because it takes more than 36 years to double money at that rate. If it weren't for learning to invest at an early age, I'd be just like the rest of the average Americans. The 50th percentile for my age (27) has a net worth of $5000 and I would be average with $5000 too if I didn't have that reason to save!

It also provided a good learning experience from which I have formed 5 principles:

1) Take calculated risks

2) Protect your principal but it's okay to risk the interest. (Phrased another way: don't lose money.)

3) Don't put all of your eggs into one basket. Diversify!

4) Don't use margin if you don't know what a margin call is.

5) Options are for viewing, watching, and analysing but not for trading (even if Robinhood makes trading them free). 90% of people lose money trading options.

Overall, an anecdotal positive experience here that I'm happy to share but with a small sample size of one.

[Ambele]

Sometimes learning experiences are worth as much as the money. Also, it's easier to panic sell index funds you aren't attached to than individual stocks you're emotionally attached to. How do you perform a valuation on an index fund like you can with a stock?

To paraphrase Warren Buffett's investment advice, if you have a high IQ, donate the extra points to someone else because what you need more is a strong stomach (for gut-wrenching volatility).

[kelnos]

> it's easier to panic sell index funds you aren't attached to than individual stocks you're emotionally attached to.

If emotions are a part of your decision, you've already lost the game. I get that humans are emotional creatures, but if you start making investment decisions based on panic and emotions, it doesn't matter if you've been buying index funds or individual stocks; you're going to perform poorly and likely lose some money either way.

[Ambele]

> If emotions are a part of your decision, you're going to perform poorly.

I agree. Hacker News readers are more logic based but the rest of the world is more emotional based. For most people, the emotional half of the brain dominates the logical half of the brain. I think we can agree that being invested in a diverse basket of 20+ stocks with 5% or less of the portfolio invested in each is regarded as a pretty safe bet. I also think we can agree that anyone who invests will do better in the long run than people who don't invest.

The news commonly sells convincing chichen-little fear that the sky is falling, the market's gonna crash, and we should all flock to gold. But I know with higher certainty that Amazon will keep shipping packages, Target will keep selling merchandise, Apple will keep selling more iPhones, and VISA cards will keep collecting interchange fees.

We can debate though whether it's better to hold an index fund you might panic sell or individual stocks that you plan to hold forever.

[PhantomGremlin]

Target will keep selling merchandise, Apple will keep selling more iPhones

Once upon a time Sears, Roebuck and Company was the country's largest retailer. Much more recently, Motorola and Blackberry sold millions of phones and Apple didn't.

individual stocks that you plan to hold forever.

Once upon a time people thought you could own the Nifty Fifty[1] stocks forever. You would probably have been better off putting your money in an index fund. E.g. what's a recent price quote on Eastman Kodak?

[1] https://en.wikipedia.org/wiki/Nifty_Fifty

[FrozenTuna]

Ummm, I just looked at that list. If you spread out an investment over those companies... I'm pretty sure you're doing damn well despite obviously having a few under performers. Since 1970, Disney grew 3500% faster than inflation. Walmart grew 2000% faster than inflation. Even with the companies that went to 0, there are some insanely good buys in that list if the year was 1970.

[Ambele]

People focus on the investment losses more because a loss is more than twice as negative to them as a gain is positive. You can gain an edge on the market if you view gains and losses for exactly what they are. The beautiful part about investing is that the downside is limited (because a stock can't go below 0) but the upside is unlimited.

The multi-baggers in the portfolio such as: 4x gains in Netflix, 4x gains in Amazon, 3x gains in Microsoft, and 11x gains in Shopify over the last 5 years will have outweighed GE dropping 50%, GM dropping 1x*, Seers dropping 1x, and Kodak dropping 85%.

I'm not as familiar with the Nifty 50 probably because I'm younger. Investopedia says it was the popular large-cap NYSE stocks of the 1960s and 1970s without an official list. but could also mean one of at least 6 indexes on the indian stock exchange[2]. Gurufocus claims they were Large Cap Growth Stocks with an average P/E Ratio of 42x.[3] Large caps are known to underperform overall in the long run but outperform more frequently in shorter 1 year time frames.[1] The same is true with growth stocks vs value stocks.

It seems to me that the reason the Nifty 50 "lost 80% to 90%" [3] is because it was overweight in large cap and growth stocks while neglecting value stocks and small cap stocks.[1] This is evidenced by the S&P 500 growing 6.78% per year annualized from 1960 to 1979 and showing a positive return over every 15 year period in recorded stock market history.[4]

[1] http://www.moneychimp.com/articles/index_funds/why_sv.htm

[2] https://www.investopedia.com/ask/answers/08/nifty-fifty-50.a...

[3] https://www.gurufocus.com/news/594692/faang-plus-m-and-the-s...

[4] http://www.moneychimp.com/features/market_cagr.htm

[crazygringo]

Better for them to learn early on that stocks can fall, with small amounts of money.

People need to be allowed to make mistakes with low risk.

[tempsy]

Why not?

Mainstream personal finance advice is pitiful.

There's wide consensus that ETFs are a bubble. On the other hand, the notion that buying an individual stock is equivalent to gambling is nonsense.

[throwaway34241]

Can you expand on how index ETFs are a bubble? You say that there's wide consensus, but when I researched it the consensus seemed to be that indexing was the right strategy for most people (and even sophisticated investors like Warren Buffett have instructed his trusts to use an indexing approach).

Beating the index is a zero-sum game, for every winner there must be a loser. Of course you can make educated choices based on the fundamentals but the same is true for sports betting too. Unlike sports betting, you are directly competing against a large number of pretty smart people who play this zero-sum game as a full time job. And some of them even have inside information.

Not that it's impossible to win of course. I can easily imagine someone with deep expertise in a certain area having a key insight about a specific company that others don't, or someone who analyzes company balance sheets and business fundamentals to come up with an independent valuation being above-average at that. It's hard to imagine that either of these groups represent the average person who will trade fractional shares on Robin Hood though.

[tempsy]

If everyone just buys the index, then the underlying stocks that make up the index are propped up in a way that wouldn't be the case if that individual stock was not a part of said index.

(This is not hypothetical it is actually happening)

[throwaway34241]

The idea with index investing is usually to buy a total stock market index. The whole stock market is in the index, so saying the index is in a bubble is basically the same as saying the stock market itself is in a bubble.

Which could be, but isn't an argument for buying individual stocks instead of the index, since that doesn't avoid the problem.

[dmurray]

This is a pretty reasonable theory. And it's true, if everyone indexes then stocks generally become mispriced. But this theory only applies at the extreme, not at the margins if say 50% or 90% of money is in index funds. If a few savvy traders buy the good stocks and sell the bad ones, they make a profit and the stocks become "correctly" priced again.

In one view of the market, this is what all those hedge funds are paid to do. They keep the prices correct and extract some money, while everyone else indexes and pays them a small fraction of their returns. Of course, hedge funds aren't getting much of that pie these days.

[crazygringo]

It is hypothetical, because you're ignoring the other side of the equation: all the sophisticated investors (hedge funds etc.) who detect that stocks are temporarily propped up in some sector and will collapse, and so go short at the inflated prices... thus lowering prices.

Companies always face a reckoning point, on their individual timelines.

It's just arbitrage 101. Nothing stays mispriced forever. And the sooner the "other side" figures it out, the quicker prices correct -- so you've got to be fast. Which is exactly what sophisticated investors are.

[Ambele]

2/3rds of hedge fund managers underperform the S&P500 index so it's recommended for all investors to keep some index fund ETFs around (like VTI or VOO) as a benchmark to outperform.

[tempsy]

Yeah not saying that part of your portfolio cannot just be the broad market, but I also often see people suggesting that doing anything other than just buying the index is somehow irresponsible and akin to "gambling".