Let's face it: Picking your own stocks is an egotistical thing to do. You're essentially betting that you, Joe Oddlot, in your boxer shorts at your Compaq laptop (too much information?), can beat the biggest minds and the best money out there -- people running billion-dollar mutual funds and private money, and wearing pants to boot!
Of course, I think it is possible to win this game, but that doesn't change the fact that playing takes a great -- maybe even a silly -- degree of self-assurance. But once in a while, even this egoist goes looking for a serving of humble pie. For that, I turn to funds.
The three Bs
There are three reasons why I use funds in my own portfolio, and why I think everyone, even stock hounds, should consider them. They are all brought to you by the letter "b": ballast, bliss, and brains. After all, who doesn't like a little alliteration, right?
It's not a requirement for every portfolio, but investing is a psychological game, and ballast can help smooth that otherwise rough market ride. If you like small caps, as I do, the weekly gyrations can be nauseating. Try holding a little bit of small-cap fashion, like Volcom
And things don't get any easier when Mr. Market has a freakout. The recent market swoon began with a wholesale dumping of foreign stocks, meaning that solid Mexican companies in my portfolio, like FEMSA, provided plenty of drama. The markets have bounced back a bit, but just ask holders of eBay how much immediate comfort they can take from their company's solid monopoly and profitability. Is their acquisition of Skype going to flourish, providing synergies and expansion possibilities, or is it going to turn out to be just another VoIP money pit -- like Vonage?
The volatility that comes with investing in growth stocks can be enough to rock some investors' boats off course. By steadying the boat with a slow, steady, growing fund, the swings and the sweating that come with investing in growth stocks can be greatly assuaged.
We could all use more bliss, right? Listen, I like prognosticating about economies and industries (travel and health care are on my mind lately) and digging into company financials and market maneuvers. It can be very rewarding to try to figure out whether Expedia is going to come back from its recent drubbing or wither in the face of competition, whether Continental Airlines is the real deal or just another jet-fuel burner, or whether Bausch & Lomb is going to become a long-term victim of eye fungus.
But figuring all of that out can get tiring. There are times when I'd rather be doing just about anything else. (Like now, perhaps, as my wife heads out into the sunshine for a bike ride and I sit here working on a hunched back and a case of carpal tunnel.) Unfortunately, you can't make informed investment decisions if you skimp on the homework. That's why I like the option that funds offer -- you know, relying on other people's know-how.
Like I said, stock picking is a bit of an egoist's game, but we'd be foolish (with a small "f") if we didn't admit that other people could do just as well. No matter how smart we might think we are, more brains can't hurt. This is especially true in looking at fast-moving tech markets.
Without reflecting on reports of semiconductor and end-product supply-and-demand trends, how else would you know whether something like Texas Instruments is a buy these days? Does Intel
Brain burners like this are some of the reasons why I don't mind the thought of handing my money over to some of the most time-tested and trusted brains in the biz. In the best fund shops, teams of people -- like Chuck Royce or Bill Nygren -- work through all of the details to arrive at market-beating investment decisions.
Making it simple
Of course, finding the right brains to give me the bliss to provide the ballast is a pretty daunting task. If you think picking stocks is hard, how about choosing funds? There are a lot more of those. Thousands more, in fact.
That's why, when it comes time for finding funds, I take an easy, proven route: I check out my colleague Shannon Zimmerman's Motley Fool Champion Funds newsletter service. Month in and month out, Shannon picks only the cheapies -- the shops likely to beat the market.
A free trial will show you the details, but here's the skinny: The vast majority of Shannon's funds are beating their benchmarks, and they're doing it by a combined eight percentage points. If he can keep that up, I may just hang up my own green eyeshade, rely on his brains, and help myself to a lot more bliss.
This article was originally published Feb. 2, 2006. It has been updated.
Seth Jayson likes picking his own stocks, but sometimes he'd rather be riding his bike. At the time of publication, he had shares of FEMSA but no position in any other company mentioned here. View his stock holdings and Fool profile here . NVIDIA and eBay are Stock Advisor recommendations. Volcom is a Hidden Gems choice. Intel is an Inside Value recommendation. Fool rules arehere.