The case against picking stocks and our fearless, intrepid investor’s performance and plans for today, Monday, November 14

As we frequently state, historically, 1.) over the long term, 2.) properly selected US market index exchange-traded funds, 3.) held in tax-advantaged accounts, 4.) in an appropriate asset allocation, have been the investors’ best way for growing savings and are likely to remain so for many years. Examples are easy to find. Here is another one.

When Facebook went public in 2012, it earned $3.7 billion, yet the stock price fell 50% that year.

From then on, until August 2021, its shares were up 2000%!! Unmatched, unbelievable!

The stock is now down almost 75% from all-time highs, falling more than 20% last Thursday alone.

Last fall, it had a market cap of over $1 trillion. It now has a market cap of $266 billion; that is, it lost more than $800 billion in a little over a year.

Except for Apple, Microsoft, Google and Amazon, $800 billion is greater than the market cap of any stock in the S&P 500. Investors who held the S&P 500 did far better in a boring manner.

Enough said against picking individual stocks. Let us visit our fearless, intrepid investor now.

Writing just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week, our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio over one year. The loss is mainly caused by picking a stock, a no, no, as our Facebook example shows.

What she learned from that experience is to write (sell) covered calls on an exchange-traded fund representing the S&P 500, such as SPY, sufficiently out-of-the-money to earn about 1% per month or slightly more. That would significantly reduce the possibility of being assigned!

Using that approach, she is doing well.

What will she do when the NYSE opened at 9:30 AM today?