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A Tale of Two Investing Strategies

March 11, 2007 – Comments (1)

I don't consider myself a good stock picker and I avoid taking investment advice from anyone who boasts about their stock-picking prowess.  For this reason, I’m a heavy investor in tried and true mutual funds that offer low expense ratios and outstanding returns.  The Motley Fool Champion Funds are world-class examples.  The thing I like most about these best-of-breed funds is that I don't have to know how to invest, when to invest, or where to invest.  I simply buy the fund and let the expert pick the stocks for me.

So herein lies the dilemma.  I would describe myself as a do-it-yourselfer.  In other words, if it's not rocket science or I have adequate tools to help me through the process, I prefer to do it myself.  Take taxes, for example. Tax rules can be very arcane to most Americans, me included.  Fortunately, Turbo Tax makes preparing and filing taxes a breeze.  So even though I don’t understand tax-speak, this finely crafted piece of software takes the complexity out of the tax code and enables me to do my own taxes.  This appeals to my DIY side.

So the analogy goes something like this:  Turbo Tax is to taxes as CAPS is to stock market investing.  CAPS has been a great tool in helping me better understand stocks and the stock market.  And since I’m a DIY’er, it’s got me thinking. 

The thing I like most about CAPS is that it’s a free service that lets investors build a community around picking stocks, validating assumptions, and testing hypotheses without having to learn lessons the hard way.  That is, without losing large portions of your nest egg to poorly crafted stock picking strategies or boastful stock-pickers confident that THIS is the next Microsoft.  Quite simply, CAPS is a tool that lets investors help investors determine which stocks are worth investing hard-earned dough in.   

So, who cares if you miss the mark and your CAPS picks belly-flop?  It’s not real money anyway.  But, what if your CAPS picks handily beat the market?  Would this give you reason to ponder, “What if that were real money on the line?”  Seems like far better returns than even the Champion-caliber funds. 

So, I’m at a crossroads in my investing strategy.  Should I stick with mutual funds or take the stock-picking path to financial freedom?  My gut tells me to stay the course with funds, but my mind and my CAPS score tell me to take the stock-picking plunge with real money.

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