Why I’ve Never Invested in Index Funds/ETFs or Big-Name Stocks (But Should You?)
Do I have a genuine edge in the market? I could be mistaken—after all, I’m just a random guy on the internet that have invested in the stock market for 4 years.
Disclaimer: I am not a financial advisor—just an individual sharing personal experiences from my time in the financial world and how I have growth over time. Since I began investing in the stock market in 2021, I’ve encountered both bulls and bear, learning the hard way through impulsive decisions. Over time, I’ve moved toward a more thoughtful approach, though I wish I could predict the market’s future with certainty!
This is not an indicator of buy or sell recommendation, so please do your due diligence. Take my thoughts with a grain of salt. I would be more glad if this article has helped you.
Here’s Why
The truth is, I avoid index funds/ETFs and big-name stocks because I thrive on the thrill of picking stocks that could have been the next “Amazon” or “Tesla” during their early stages. I also seek out opportunities in companies experiencing turnarounds, like “SMCI,” which went through 15 years of stagnation before shocking everyone with its sudden growth over two years.
To me, that’s a worthwhile risk and a fulfilling journey in investing.
I may be wrong, but I take pride in this approach because it requires extensive analysis and a deep understanding of a business’s fundamentals. I want to know whether a company can withstand the harshest environments while competitors try to take their market share. Simply put, I aim to invest in companies that can stand the test of time, both for my portfolio and the company I invest in.
Why should you invest index funds or ETFs?
In all my reasoning, it feels contradictory to recommend index funds or ETFs to everyone while secretly holding a stocks-only portfolio. However, my personal investment strategy is based on my risk tolerance and style, which isn’t necessarily suited for everyone. What works for me may not work for someone else, and it’s important to recognize that.
That said, I genuinely believe most retail investors should consider index funds or ETFs, especially those working 9-to-5 jobs with a primary focus on building their careers. Learning the stock market requires time and dedication, almost like taking on a new skill. And let’s be honest—if you’re not naturally inclined toward numbers and financial analysis, index funds or ETFs are a much simpler, safer path to long-term growth.
While index funds or ETFs may not offer the potential for explosive returns that individual stocks can, they provide something far more valuable: stability. In times of market downturns, they won't wipe out a large portion of your capital, which is crucial when you need access to your funds the most. They act as a "safe haven" for many investors, offering a balanced approach that helps guard against inflation and other factors that erode the value of your money over time.
Investing in them doesn't have to be complicated either. Simply find an industry or group of companies you're interested in or have knowledge about. Once you've invested, you’re essentially owning a basket of stocks that represent that sector or market.
However, there are a few things you need to be mindful of.
Always do your due diligence on the fund’s expense ratios and ratings. These metrics can tell you a lot about how reliable the fund is and how well it might perform even during tough market conditions.
It’s also crucial to understand the weightings of the holdings within the index. Avoid funds that are too concentrated in a few stocks, as these can be more volatile during downturns, which might lead you to make poor decisions—like panic-selling at the worst possible time.
Those are the general tips I’d offer when considering index funds or ETFs. But if none of this resonates with you, it’s perfectly fine to avoid them. After all, there’s no such thing as a “second choice” in investing—only personal choices that align with your financial goals and comfort level.
Finding Good Index Funds or ETFs:
Pick an industry that you love or have an edge in
Do due diligence on the fund such as, it’s expense ratios, ratings and weightage of their holdings
Avoid funds with concentrated in a few stocks
You can easily find those index funds or ETFs that resonate with your investing at this website, ETF for searching of ETFs and Morningstar for ratings.
Big-Name companies as an investment
Surely, we’ve all heard of names like Apple, Facebook (now Meta), Amazon, and even Nvidia (with the AI hype). These companies dominate the market, and if you invest in index funds or ETFs , you'll likely notice their significant weight. They are, in many ways, the pillars supporting indices like the S&P 500, which is why they’re so heavily featured in most index funds or ETFs, almost like household brands.
Investing in these giants may seem like a smart decision—if you manage to buy them at the right price and the right time. It's akin to how market conditions can suddenly make even the most exclusive opportunities accessible to those who are prepared.
You would probably need a rare event, like the 2008 financial crisis, where even the strongest companies faced massive sell-offs, creating once-in-a-lifetime buying opportunities. During that crisis, Amazon’s stock price dropped by nearly 60% in just a few months, only to rebound dramatically as the company continued to dominate e-commerce. Moments like these, while infrequent, offer a unique chance to buy into top-tier companies at a heavily discounted price.
A similar situation occurred during the 2022 bear market, particularly with Meta. As Facebook transitioned into Meta, many investors doubted its future in AR/VR, leading to a sharp drop in its stock price to below $90. That moment offered the right price and timing, but did many people take advantage of it? I know I didn’t. It remains one of my biggest regrets, especially knowing that Meta is a great company investing in future tech. It made me reconsider why I didn’t hold onto my shares earlier.
That said, opportunities with big companies are limited. Most headlines and media coverage tend to promote these companies, encouraging people to buy rather than sell. This creates a saturated market filled with both professional and retail investors, making it rare to find the right moment to invest—like during a major market downturn. However, when those opportunities do present themselves, they can be highly rewarding if you’re prepared to seize them.
Consider what happens when the market offers attractive stock prices for companies you’re interested in buying. You might even find yourself thanking short-sellers for orchestrating such attacks, as they often bombard these companies with alarmist articles declaring, “Catastrophic events befalling Company A!” or “Class Action Lawsuit filed against Company ABC!” It’s easy to fall into the trap of thinking, "Maybe there’s something fundamentally wrong with the company."
When these situations arise, will you have the confidence to act? Imposter syndrome can easily creep in, making you doubt your knowledge even when you're well-informed. The data may lead you to second-guess yourself, particularly when renowned companies like Meta experience dramatic drops.
This skepticism is why I often distrust short-seller research reports—they tend to be heavily biased. Their primary goal is to incite market panic by influencing algorithms and swaying investors, which can cause stock prices to plummet. As buyers rush to sell their holdings in response to these reports, it creates a ripple effect that further drives down prices, allowing short-sellers to profit from the chaos. In this scenario, it’s the panicked buyers who ultimately suffer the most, while short-sellers cash in on their fear.
Additionally, I avoid investing in large companies because their growth potential is relatively limited. While doubling your investment may sound appealing, the chances that a company with a trillion-dollar market cap will achieve 2x growth every year are slim, as that level of growth is simply beyond what the economy and population can support. Instead, it’s often more lucrative to explore smaller-cap companies that present significant growth opportunities, where you might see a 10x return on your capital.
If you enjoy my posts and insights, there’s more on the way! I’ll be diving deeper into my investment strategies, thought processes, and providing valuable content on personal growth, stock market analysis, and fundamental research. You'll get a closer look at how I approach investing and life, with fresh perspectives that can help you navigate both.
Coming up next
How I finally solved the stock market (in my own context)
SMCI Stock Analysis: Is it this the dip before the rip? Like how Meta did.
After 25 years of self-battle, I am finally freed
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Picking the Right Stocks
Finally, coming to my favorite part: cherry-picking the right stocks based on your unique perspective. Many people often have misconceptions about how and where to pick the right stocks. In reality, it boils down to four simple rules:
What is your financial goal, and how do you plan to achieve it?
What is your understanding of the industry you're focusing on?
What data is available to you, and how can you interpret it for yourself?
Do you inherently have a gut instinct about your choices?
First and foremost, you need to understand your own financial goals and the path you’re willing to take to achieve them.
For most people, this path involves working a 9-5 job, either temporarily or until retirement. I assume this is the case for many. From there, you should look into the niches and industries you are already familiar with to help make informed stock-picking decisions. It’s not rocket science, but if you’re not involved in a particular industry, you might need to dig a little deeper to understand it. Ultimately, it's about knowing how the business operates and having the guts to believe in its potential.
Let me give you a brief example to illustrate:
Since my early teens, I have worked in the retail industry (clothes, phone, merchandise). This gave me a general understanding of how the industry works—what makes a customer interested in buying a product, how to attract them, and what keeps them coming back. These insights, which I gained firsthand, helped me make informed investment decisions about Company A. After researching the company's financial reports, understanding the founder’s vision, and seeing how those plans were coming to fruition, I could tell if the company was aligning its goals with the interests of its shareholders.
This instinct and understanding naturally build over time as you dig deeper into a business. And trust me, when you ask yourself why you’re investing in a particular company, the answers should come to you quickly and clearly over time. These are the insights you won’t need to revisit often—unless for fact-checking purposes.
Conclusion
In my investment journey, I’ve come to realize that there is no one-size-fits-all approach to investing. Whether it’s avoiding index funds or ETFs and big-name stocks in favor of individual picks or emphasizing the importance of understanding your own financial goals, the key is to find what resonates with you. I take pride in my method of stock picking, which allows for deeper engagement and a sense of fulfilment as I navigate the complexities of the market.
That said, I also acknowledge the benefits of index funds/ETFs for many retail investors. For those focused on their 9-to-5 careers, index funds/ETFs provide a stable, lower-risk pathway to long-term growth, freeing you from the stress of day-to-day market fluctuations. While the excitement of selecting individual stocks can be rewarding, the stability of index funds or ETFs is invaluable, particularly during volatile periods.
Ultimately, investing is about personal choice.
First, your strategy should align with your financial goals, risk tolerance, and willingness to engage with the market.
Whether you choose to invest in index funds or ETFs , chase high-potential stocks, or strike a balance between the two, the most important factor is to remain informed and adaptable.
By understanding the nuances of both approaches, you can create an investment strategy that not only reflects your aspirations but also stands the test of time in the ever-evolving landscape of the stock market.
As you embark on your own investment journey, remember to stay true to your convictions and continuously educate yourself. After all, the best investment you can make is in your own understanding of the market.
Disclaimer: The information provided above should not be considered financial advice. At the time of publication, the author may or may not hold a position in the securities mentioned. This content is for informational purposes only and does not constitute a recommendation to buy or sell any securities. Readers are encouraged to perform their own research and due diligence before making any investment decisions.