This episode is actually a replay of a previous episode we had done - Episode 63 - about the danger of picking individual stocks. This time we wanted to rename it "Betting the Farm" because we feel like that title is more representative of what we're seeing today in 2026. In January of 2026, the S&P 500 had crossed the 7,000 mark and the Dow Jones had passed the 50,000 mark. These are both tremendous milestones in the United States stock market. Not to mention, countries other than the United States, which have struggled over the past decade plus, have significantly outperformed most companies in the United States over the past year or so, and history has shown us that this trend can continue for quite a long time. Another reason I wanted to bring this episode back is because it's easy to look like you know what you're doing and feel good about picking stocks when the overall market is doing well. It isn't until you experience a significant drawdown that your thoughts, confidence, and emotions start to change. And this isn't just about stocks either. This can be really any asset class. It could be owning real estate while it's going up substantially. It could be buying gold before it takes off like it has throughout 2025 and 2026 so far, or even cryptocurrency. Simply as a product of human nature, investors are extremely overconfident in their abilities and they're not realistic with themselves. Many times, in practice, we often see portfolios full of risky positions that have very little to no rational rhyme or reason for owning – and the reasons are many. Many times, investors get into these positions simply because it was recently going up in value and so they didn't want to miss out. Or someone they know, who, by the way, is not a professional investor, shared with them their recent experience in the position. It also happens by reading some article on the internet or watching some show on financial television that all seem to be in consensus that a particular company or investment should be a good investment moving forward. Another common one we see in practice is that positions start to build substantially and become overly concentrated in a portfolio when investors are afraid of taxation. Everyone hates paying taxes, including myself, and when people purchase an investment and it appreciates substantially and now has embedded capital gains, if they were to sell some or all of it, oftentimes people do not want to pay the tax that comes with it. That causes them to hold the position for far too long and add additional risk to the portfolio by being over concentrated in that position. While this is understandable, you cannot let the tax tail wag the dog. Would you rather pay preferred capital gains rates and rip the band aid off to diversify, or would you rather take the risk that your position falls 70 or 80% or worse, slowly drags on with little return over the next decade? People hate paying taxes but I'd say losing 70 to 80% is worse than paying 15 to 20% in tax. It also commonly happens when you work for a company that offers employer stock awards, such as RSU's, stock options, or stock in the 401k plan. Because as you work, you just continue to accumulate this stock and, while it's going up, you feel like you should just continue accumulating it without a need to diversify at any point in time, since it seems like it's always going to make you money, and you have a natural bias towards the great company that you work for. But the vast majority of the time, it's purely a hunch or a guess. You're purchasing an investment just hoping and thinking that it will succeed over the long run. I want this episode to serve as a reminder about risk taking and diversification. While times are good we feel good and we often lose sight of the ultimate goal for our investments and what we need them to do for our financial plan. Sometimes when things do extraordinarily well, we continue to ride the wave, thinking we'll make more and more money, and don't think about the potential ramifications of when the tide goes out. And I have a feeling that the next time the tide goes out, many people are going to be caught swimming naked and get burned in a lot of the positions we're seeing people accumulate today. Whether that's stocks particularly in companies in the US, large positions in AI-related stocks, your employer stock awards at work, cryptocurrencies, or even commodities like gold. If you're one of those investors that has been riding the wave on a certain position and you feel like you've made a lot of money and that the trend could continue, you may want to rethink your overall goal and strategy and consider proper diversification. Especially if you are trying to grow a portfolio that you will need to live on throughout a potential 20 to 30-year retirement. That being said, enjoy this week's replay of why picking stocks can be dangerous. More specifically, we discuss: The most important question for DIY investors picking stocks and funds What does the research say about stock picking and market speculation? A surprisingly small percentage of stocks generate an overwhelming majority of shareholder wealth Investor emotions serve as a significant roadblock in making investment decisions Your Family Risk Profile Resources: Access Episode Show Notes and Sign Up for the Retired·ish Newsletter Ask Cameron A Question! Key Moments: (00:00) Introduction to Betting the Farm (08:43) DIY Investing: Picking Individual Stocks (10:43) Stock Pickers Typically Underperform Market. What Does The Research Say? (16:41) Very Few Stocks Drive All of The Market's Growth Over Time (23:34) Emotions Make Investing Extremely Difficult (26:03) The #1 Question You Should Ask Yourself When Picking Stocks or Timing The Markets
