There is a wonderfully boring argument for how to build wealth in the stock market.
Buy a diversified collection of productive businesses. Keep buying. Reinvest the dividends. Avoid panicking. Wait a very long time.
For most individual investors, broad-market index funds make this remarkably easy.
There is only one problem.
Stock picking is fun.
Not for everybody, certainly. But for a particular kind of investor, researching individual companies scratches an itch that an index fund simply doesn't. There is a puzzle to solve. A judgment to make. A possibility that everyone else has missed something.
Maybe a company is temporarily unpopular. Maybe a promising business is buried beneath ugly quarterly numbers. Maybe the market has underestimated some technological change. Maybe you have found the proverbial $10 bill lying on the sidewalk.
And, hovering somewhere behind all that sober analysis, there is another possibility:
What if this one really takes off?
This creates a peculiar conflict.
The investor may intellectually believe that diversified, long-term investing is the more dependable path to wealth while simultaneously finding individual stocks much more interesting.
The usual solution is straightforward: suppress the second impulse.
But perhaps there is another possibility.
Instead of trying to eliminate the desire to speculate, give it a budget.
