The Big Picture for the Week of May 8, 2011

David Merkel says Most People Are Better Off Not Buying Common Stocks On Their Own. This is a multi-dimensional conversation. If we are talking about all market participants which includes 401k participants who would otherwise have no interest in investing then of course David is correct. But this is less clear for an investor so interested in investing that he knows who David is and reads his posts (not a shot at all, I have very good friends with zero interest in markets who have no idea about the blogging part of my life). Someone with that level of interest is more likely able to select individual stocks.

I'll circle back to the Fishing Industry ETF (FISN), by the way I got a good teasing from Josh Brown about this fund. When I first mentioned fishery stocks there was a frequent commenter who knew these companies in tremendous detail, she seemed to have total recall on fluctuations on hatchery production levels. If you have that level of interest in some niche then chances are you can make an informed decision about what stocks to buy in that niche.

Depending on the time you spend there could be several niches that you can make informed decisions about individual stocks to buy. The number of individual stocks to own varies from person to person with zero being perfectly acceptable. Realistically for someone who is at least moderately interested, with average analytical skill or experience could handle three or four individual stocks mixed into a fund portfolio.

Part of this has to be some self awareness as to interest, time available, ability and tolerance for volatility. You probably don't need to visit seven or eight production facilities to decide to buy Proctor & Gamble (PG), to pick a name we do not own, and by the same token you probably should not buy a gold mining company with nothing proven because it has a neat name.

When you take the time to understand what you are capable of you can then build a more suitable portfolio. It doesn't take too much time to understand that fish demand is increasing and to see how well some of the stocks have done in the last couple of years and how hard they got hit during the meltdown to understand the behaviors. If the demand story really interests you and you can find enough information to make an informed decision it would then be very reasonable to pick the ETF over an individual stock in the space. This logic can apply to just about every niche ETF; interesting dynamic leads to valid theme leads to want to invest but preferring not to go in with an individual stock.