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Rekenthaler Report

When to Buy Stocks Directly

An offer that most investors should refuse.


Opening Salvo
Last week, Morningstar's Christine Benz wrote that buying individual stocks was a "TERRIBLE way to begin investing." (All caps, Christine?) Not all readers agreed with her, but as their main counterargument was that losing money teaches novice investors a valuable lesson, their defense seems questionable. Surely there are better ways to learn that fires burn than to put one's hand into a flame.

Besides opportunity cost, the young investor who starts with stocks courts the danger of performing so badly as to become disillusioned, thereby abandoning equities. As Mark Twain said, a cat that jumps on a hot stove will never make that mistake again--but neither will it jump on a cold one. No such worry when buying a diversified fund, when the greatest concern tends to be stifling a yawn.

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.