Or Individual Stocks?

Ask the Fool 401(k) or Individual Stocks? Is investing in individual Qstocks through a broker- age account better than investing Fool’s School Ideally, you want a profit margin My Dumbest Investment The Motley Fool Take through a 401(k) account? — greater than those of competitors, and A.A., Salisbury, Maryland margins that are increasing. On the Sidelines Friend This Stock? Either can work well. You’ll Phil Fisher’s • “Does the company have out- Ahave more control and the 15 Points standing labor and personnel rela- My dumbest investment move Facebook (Nasdaq: FB) is huge, possibility of faster growth with tions?” Satisfied employees tend was not investing in the stock sporting a market value recently individual stocks, but that can also In his classic investing book to stick around and be productive; market after the financial crisis of north of $800 billion, and many be a riskier strategy, since one or “Common Stocks and Uncom- disgruntled ones, less so. 2007 to 2009. — Jimmy, online huge companies feature slower more stocks might severely disap- mon Profits” (Wiley, $25), Philip • “Are there other aspects of the The Fool Responds: You high- growth than smaller ones. But A. Fisher laid out “Fifteen Points light a major kind of mistake we Facebook’s revenue grew by a hefty point you. business, somewhat peculiar to the 22% in 2020 over year-ago levels, With a 401(k) account, your to Look for in a Common Stock.” industry involved, which will give all make sometimes — the mistake of not doing something good, while operating income jumped investment choices will typically Decades later, these questions can the investor important clues as to 36%. Here are some more huge still help us identify promising instead of doing something bad. be far more limited; you may have how outstanding the company will be Many people failed to invest numbers: The company’s daily to choose from a small group of investments. Here are some of them: in relation to its competition?” Great during that period because active users averaged 1.8 billion mutual funds, for example. But • “Does the company have prod- businesses tend to have sustainable that’s what we humans in December, with the number of 401(k)s offer tax breaks, and if your ucts or services with sufficient competitive advantages, such as Dis- tend to do, by nature: If monthly active users averaging 2.8 employer matches part of your con- market potential to make possible a ney’s strong brand or Apple’s net- lots of people are panicking and billion — and growing. tribution to your account, that’s free sizable increase in sales for at least working platform, which keeps users selling shares of stock, sending While many rapidly growing tech money. several years?” There’s little point more and more tied to its ecosystem stock prices down, it’s easy to stocks are sporting steep price-to- investing in a company that’s not join them and difficult to be earnings (P/E) ratios, Facebook’s You can actually do both — use with each new product. P/E was recently only in the mid- your 401(k) and also invest in some growing. • “Does the management talk freely contrary. But stock market crashes are terrific times to buy stocks, 20s. Factors that have been keeping individual stocks. But if you’re • “Does the management have a to investors about its affairs when the stock from soaring lately include determination to continue to develop because shares of great companies not going to research and keep up things are going well but ‘clam up’ will be on sale. worries about Apple clamping down with those individual stocks, just products or processes that will still when troubles or disappointments The S&P 500 index of 500 on privacy and talk of Washington stick with a low-fee, broad-market further increase total sales potentials occur?” It can be hard to get a good of America’s biggest compa- forcing the company to break up index fund or two — which you when the growth potentials of cur- handle on management, but read- nies plummeted by over a third its family of Facebook, Messenger, can probably also invest in through rently attractive product lines have ing several years’ worth of a CEO’s in 2008, and dropped quite a Instagram and WhatsApp platforms. your 401(k). largely been exploited?” Look for annual letters to shareholders can bit more in early 2009 before If it’s broken up, though, inves- Whichever route(s) you take, companies investing in research and help you see if they’re frankly dis- rebounding. The S&P 500’s low at tors are likely to benefit, as they development, with demonstrated that time was about 676, in March would receive pieces of spun-off start saving and investing as soon as cussing challenges, owning up to businesses that would each keep you can to give your money lots of innovation skills. mistakes and clearly laying out strat- 2009. If you were brave enough to buy shares of an S&P 500 index growing on their own. And though time to grow. You can learn much • “Does the company have a egy. Concealing problems or blam- Apple may reduce Facebook’s abil- worthwhile profit margin?” and fund near that low, say at 700, more about retirement and investing others is a red flag. and hung on, you’d have done ity to track users’ data, Facebook ing via our “Rule Your Retirement” “What is the company doing to Reading Fisher’s book can make quite well, as the index was will still remain a powerful digital service at Fool.com/services. maintain or improve profit margins?” you a much smarter investor. recently at 3,974 — reflecting advertising channel, offering access *** a gain of over 450%. If you’d to billions of consumers. bought into the index a year later, (The Motley Fool owns shares of How often should I review Name That Company when it was at 1,140, your gain and has recommended Facebook. Qstocks I hold in my portfo- would be under 250%. Randi Zuckerberg, a former direc- lio? — E.M., Dallas I trace my roots back to 1938, It’s not a bad idea to keep a tor of market development and when a guy in Chicago started a little cash on hand for occasional spokeswoman for Facebook and Ideally, follow those com- sister to its CEO, Mark Zuckerberg, panies at least every three mail-order tractor parts business market crashes, to snap up low- A priced shares of stocks you’d is a member of The Motley Fool’s months, when they issue their at his kitchen table — and soon love to own. board of directors.) quarterly and annual reports. Read opened his first store in Minot, the reports and their accompanying North Dakota. I hit $1 billion in sales LAST WEEK’S TRIVIA ANSWER press releases and financial state- in 2002 and was added to the S&P ments — all of which are typically I trace my roots back to the 1827 chartering of the Baltimore & Ohio Railroad, which originally ran for 13 miles in one state. found on the companies’ websites. 500 index and the Fortune 500 in 2014. Today, with a stock market value (Its trains were pulled by horses.) Today, based in Jacksonville, Check for any articles about the Florida, with a market value recently near $70 billion, I’m one companies at Google News and at recently near $20 billion, I’m the pre- of the nation’s biggest railroad companies, boasting a network Fool.com. You can check on big, mier “rural lifestyle” retailer in the U.S., of some 21,000 miles that traverse 23 Eastern states. I took my established companies less often, but with more than 1,900 stores in 49 states, current form via a 1980 merger between Chessie System and the more you know about all your Seaboard Coast Line Industries. My network links more than 230 holdings, the smarter the decisions and more than 42,000 workers. I also own short-line railroads and dozens of ports. Who am I? (Answer: CSX) the Petsense chain of more than 180 stores you can make about your portfolio. Email us at [email protected], and we’ll in 25 states. Who am I? Want to Invest? Want more information about stocks? send you some tips to start investing. Sorry, we can’t provide Send us an email to [email protected]. Think you know the answer? We’ll announce it in next week’s edition. individual financial advice.