The Dangers of Owning Individual Stocks

by | Feb 4, 2022 | Blog, Videos

We’ve seen several extremely volatile moves in big tech stocks this week after they’ve released their earnings reports.

Owning individual stocks is risky.

In this week’s video, Casey explains what’s been going on while highlighting the best way to own individual stocks.

Show Notes

Ben Carlson – The 5th Largest Company in the S&P 500 is -24%

What to Focus on When the Stock Market Drops – Mullooly Asset Show

It’s Normal for the Stock Market to Go Down – Mullooly Asset Show

https://tpmullooly.wistia.com/medias/vtmj1qi87a?embedType=async&videoFoam=true&videoWidth=640

The Dangers of Owning Individual Stocks – Full Transcript

**Click here a downloadable PDF version of this transcript**

Casey Mullooly: In episode 279, we talk about the risks of owning individual stocks.

Casey Mullooly: Welcome back to the Mullooly Asset Show. I’m your host, Casey Mullooly. This is episode 279. Thanks for tuning in. Just because there’s no tie doesn’t mean it’s not important. So we’re going to talk about owning individual stocks and having large concentrations of your portfolio in single stock names. So we’re recording this on February 3rd, 2022.

The market has gotten off to a bumpy start here like we’ve talked about in the last two videos, but a theme that’s been going on has been the indices have been holding up better than some of their underlying parts and have hat tip to Ben Carlson who put out this information.

The fifth largest company in the S&P 500 is down about 25% today. But the index itself is down about it’s down about 1.8%, almost 2%. We’ll see how it finishes up today. But fifth largest company down 25%, index down 2%.

Casey Mullooly: Of course he is referencing Facebook or Meta. Not really sure what they’re called right now, but they put out an earnings report last night and investors are reacting very negatively to it. We saw something similar happen with PayPal yesterday. Same thing, slower growth than anticipated, their stock price was down about 28% yesterday.

So just very strong, negative reactions to these earning support and that’s the risk of having a lot of your money allocated towards single stock names. We hope that you’re basing that off of numbers, their internal numbers, but the risk is you only know what those numbers are once a quarter, and you don’t know how the market’s going to react to them.

Sometimes good news is good news. Sometimes good news is bad news. Sometimes bad news is good news. You just don’t know. And that’s the risk that you’re taking on when you do this.

Casey Mullooly:
We talk about this all the time when people are like, “Well, if you just put $10,000 into Amazon in 2000, you would be a bazillionaire by now.” Great. Sounds good on paper. But what you don’t hear about is how these high flying stocks go through 40, 50, 75, 90% drawdowns.

They just get completely wiped out and you’d have to hold through all of that to see the gains. What you don’t hear about is the probably thousands of people who sell out at the bottom just because they want to salvage some of their investment.

Casey Mullooly: Look, being diversified and sticking to your investment strategy might be the most boring way to invest, but would you rather be boring or would you rather be blown out? We’re not saying that you can’t own individual stocks.

We get it, you believe in a company, you like their message, you think that’s the future. Great. But you got to make sure that they’re proportionate to your overall portfolio. These positions in individual stocks have to be right sized because they’re risky. They move around a lot and just make sure that they’re in the right proportion to your overall allocation.

Casey Mullooly: That’s the message for episode 279. Thanks as always for tuning in. We really appreciate it guys. And we’ll be back with you for 280.