I’ve been thinking a lot lately about the wildly popular advice in the FIRE community on ETF Index Investing and have decided it would be a useful to challenge the conventional thinking since after all f#$% it we’re not sheep are we? No. Not on this site we’re not. Here we’re not average bears. (And we like a healthy debate)

Here are my top ten advantages of direct company ownership vs. funds. Ten because I had eleven until I realised that one was a duplicate so 10 it is.

1) There are no ongoing fees

ETF’s have annual fees

The purchase and sale will incur a fee however with a buy and hold mentality this is nominal and likely less than a lifetime of annual fees

2) A normal person has enough time to understand one or a few companies very well. You can deep dive to understand it’s strategy, management, competition and direction since it’s only one thing to worry about.

I’m currently invested at about 75% of my equities in one investment however this allows me to listen to earnings calls, read daily news, react to my original investment thesis in real-time. I’ve used this information to add additional shares at yearly lows and lower my average purchase price.

3) Investing in companies whose business you understand can give you an advantage

I think this is huge. It makes no sense to invest in something you don’t understand because then you are forced to rely on others for their assessment of what is going on. This doesn’t work. If you don’t understand the business or industry then you have no advantage. You’re just another smuck listening to some other smuck tell you what to do. If you had a background in technology you would have bought Microsoft and Intel in 1990 and sold Novell and you would have been right. Very right. (You probably would have also sold Apple however not seizing every opportunity doesn’t make you lose if the opportunities you do seize win).

4) Time in a growth or value stocks can allow for outsized gains.

This is super powerful. If you hold long enough you can almost always be right. If the company survives the test of time then it will rise. It might not follow the market but eventually it will either outpace it or at least catch up to it. That is if you’re patient. In an index fund you will only ever do as well as the market.

Do not invest any dollars that you aren’t prepared to be without for at least 10 years. That’s right 10 years. Minimum.

5) Investing is all about odds and this increases your odds.

This one applies to all types of investing. Applying the advantages outlined here to choosing companies to invest in increase your odds of success.

You don’t need to “time” the market or be greedy. Buy when the odds of an increase are in your favour and take profits when you’ve made a fair profit and when the odds of future increases therefore have decreased. Put your profits somewhere else where the odds are again in your favour

With one company you can be close enough to it to assess the odds daily

6) You are free to make choices based on the individual company intrinsic value and you do not need to worry about the market valuations as a whole.

I am a big fan of value investing and trying to find the current ugly ducklings that can turn around. If you can determine an undervalued opportunity you increase your odds of success.

If you maintain a long term thinking approach you have the benefit of being able to identify great companies that have been short term devalued.

7) Gives you flexibility to reduce risk during times when no good opportunity exists

When you’ve succeeded with an investment and there is not another one to shift into you can take money off the table completely and reduce risk.

You do not have to invest for the sake of investing. Waiting for the next opportunity is just as important as identifying it. This is the biggest mistake that I think most people make. It’s easy to be ready for the next thing when it suits you however most often the next thing is not there when YOU are ready but when it’s ready to show itself. I’ve kept lots of money on the sidelines for many periods of time and it’s allowed me to jump onto opportunities when they appeared.

8) You have a chance to vastly outperform the market

An index fund will only ever perform in line with the index. You might not lose but you won’t win either.

9) Liquidation doesn’t come with “rules” attached

A fund might suspend redemptions during a major event or who knows because they make the rules and not you. In a direct company stock there are no special rules to follow like might happen with a managed fund.

10) You don’t have to risk everything for this kind of a strategy. It does not have to be your whole portfolio

This approach can be used in conjunction with many different investments including but not limited to real estate, side hustle, part time work, private investment and even index funds.

You should be looking for opportunities wherever they exist, and they may exist anywhere.

And because I like to give the other side of opinion at least a minute of thought here are the disadvantages:

1) It can be high risk if you’re dumb and get it wrong

2) It requires you to invest time to be actively following the company chosen to maintain ongoing evaluation of your investment thesis

3) Refer to point 1