Stockpicking: Investing or Gambling

I earlier said that I think that young savers should be invested in 100% stocks. Should that include picking individual stocks, or just having mutual funds that own stocks? Well, I think that picking individual stocks can make sense. But, you want to decide whether you want to pick stocks like a gambler or pick stocks like an investor.

Gambling
A gambler picks stocks they know little about, in risky industries, possibly because they heard or read something about the stock. Buying a stock without doing research to really get to know the stock is gambling. Buying stocks of businesses you don't understand is gambling. Buying stocks of businesses that you don't know will be around in 1, 5 or 10 years, is gambling.

I remember hearing something about a stock for First Marblehead Corporation (FMD). This company makes money with student loans for college students and the stock has been decimated. It has gone from a 52-week high of $45.70 to a low of under $4. The stock may be cheap. I would think that student loans will be a big business for years to come. If the company can stay alive, its stock could double or triple. But I have no idea about the details of their business. I have no idea if they will go bankrupt. And, some investors thought the stock looked cheap at $15, $10, etc., and have lost big money. For me to buy this stock, I would be simply gambling. Maybe it would work out, maybe not. But it wouldn't be investing.

Investing
Investing in individual stocks means researching the company. Researching the companies earnings and other fundementals. Understanding the company. What they do. How they will make money in the upcoming years. You can draw on your personal experience here. Is the company one whose products you would buy? Is it a product/service you like, understand and think will be around in 10 years.

There are a number of books and theories on investing that can help you here. And I think that it is ok to look at expert recommendations, as long as you confirm those recommendations before investing your money.

I think there is a temptation to buy stocks like a gambler. Buy a story without doing the work of researching a company yourself. I just don't think that you can be successful as a stock gambler over 30 years.