Stocks or Mutual Funds

An investor has an option when it comes to buying equities, individual stocks are a mutual fund that contains a group of stocks. The mutual fund gives diversification in a variety of stocks. An individual stock has no diversification and has considerable more risk because it has unlimited upside potential and can theoretically go to $0.00. For the savvy investor which one is best an individual stock or a Mutual Fund? My answer is a mutual fund.

Reasons to Own a Mutual Fund

While a stock has considerable risk a belief seems to exist that a person can get sufficient information to know when to buy or sell it. I think this is absolutely false. Let's look at the events around General Electric, GE on Friday, April 11th.

Certainly GE has been a darling on Wall Street. On Friday, April 11th, GE announced earnings. Let's go through the sequence of events:

• The belief on Wall Street was that earnings would be good and reasons were given by the experts that make a lot of money giving investor advice.
• Earnings missed expectations and a positive spin was put on the results.
• By the end of the day the stock dropped 13%, the worst 1 day decline since the 1987 market crash. This fact came from Barron's April 14, 2008 publication.
• Barron's wrote a wonderful article in this publication, "At GE, One Bad Quarter Doesn't Spoil the Story" by Andrew Bary

The questions are:

1. What would you have done if you would have listened to the advice prior to the earning announcement? Lost 13%.
2. Why would Barron's publish the article? To sell more publications.
3. Why would Andrew Bary write the article? To make money.
4. Do people at Barron's or Andrew Bary own GE stock? Most likely.

Bottom Line: Are you getting the total unbiased information from these experts? No. If these experts can't get it right on GE, what makes you believe they will get it right on any stock that you own.