How Much Time Does Amateur Investing Require?

Posted by: Ben Steverman on July 16, 2008

If you invest or trade in individual stocks, how much time do you spend on research before you buy?

Yesterday I was talking to Ron Sweet, the vice president of equity investments at asset manager USAA. After warning that this is a “perilous time” for individual investors, he advised: “You have to spend 40 or 50 hours on a stock to really know it.”

40 hours per stock and a 40 stock portfolio — that’s 1,600 hours. But you’d be foolish to buy all or even most of the stocks you get to know. The whole point of your research is to pick the winners from the losers. So if you’re talking about research on, say, 100 stocks, that adds up to at least 4,000 hours of research. That’s 77 hours per week!

Jim Cramer advises spending about an hour a week for each stock you own. I believe he advises investors have a smaller portfolio, but even if you have just ten stocks, that’s 10 hours every week. And you also should make plenty of time for scouting out new prospects. In his latest book, Cramer steers most people away from do-it-yourself investing. As I wrote in December: “To advise readers and viewers to trade short-term, Cramer says, is like telling them ‘you too can play in the NBA.’ A few might be able to do it, but the vast majority won’t.”

I would guess that most amateur stock pickers are not spending anywhere near the amount of time either Sweet or Cramer advise.

Much of the investing advice on the Internet seems designed to reassure investors that stock-picking is easy. Often they’re paired with some investing method (for sale in a book or over a web site) that offers effortless results.

A financial planner named C.C. Collins writes (in a post found several places on the web for some reason):
“The most successful investing methods should take most individuals no more than four or five hours per week and, for the majority of us, only one or two hours per week with little to no stress involved.”

One author, Phil Town, says you can invest in “just a few hours per week.”

Some part-time investors do spend a substantial amount of time.

For example, this individual investor named Brad spends as much as 15 to 20 hours per stock “collecting information, studying fundamentals and watching them over a period of time.” After that initial research, “maintaining and updating new information over time becomes quite routine.” A nurse, Brad says he spends far less time on his health care stocks, which he already understands well.

Brad’s method sounds like the most time an employed person could realistically spend on stock picking in their spare time. Do you think it’s enough? How much time is appropriate? Can a part-time investor ever match the time and resources that professionals can spend on equity research?

Another question: Does it matter how much time you spend? Or, as many mutual fund managers find, are you doomed to never outsmart the market over the long term anyway?

Reader Comments

Brad

July 16, 2008 3:50 PM

Thanks for the link Ben.

In the article you referenced I discussed what I call a situational analysis - basically documenting relevant information during my stock analysis that can be accessed whenever I like. The clear benefit is that a single stock might not be cheap for months, but when it is you can simple review your findings, decide if anything fundamental has changed and your homework is already done. This works well for an investor with a long-term buy-and-hold strategy, but would clearly take too much time for a active trader.

15-20hrs might be spread out over a few months and routinely I try to analyze a maximum of 3-4 stocks at a time. As a value investor I believe its really important to understand what you own - just like a business owner.

I can't match the financial resources that professionals use in their stock analysis, but sometimes that just makes the water murkier. Simple strategies and analysis are sometimes all you need - hence my Value Rules.

GHarri

July 17, 2008 11:15 AM

These days, doing it yourself is often the best bet (for lots of things), but not always. Sometimes it's still better, even financially, to hire a pro. Good debate on that right here:
http://digits.hrblock.com/ssDigits/digits.php?rType=1&sPath=2405&sNode=2405&uId=293

big3scouting.com

July 18, 2008 12:45 AM

This is good advice for us beginner investors.

Denny

July 21, 2008 3:25 PM

Is this worth it?

Stewart

July 22, 2008 12:47 AM

I think once you've invested time in getting to know the first stock in an industry that your job is easier (and hopefully shorter) for the next stock in the same industry.

Ali's Investment Playground.net

July 23, 2008 11:57 AM

Great article. Its HARD to pick stocks. And simple fact is that money managers who do it for a living have been getting increasingly better at it week after week. And after many decades, they still suck at it.

So how can an amateur investor ever give it the time required?

I suggest spending the time that this article speaks of, but investing with no more than a few thousand dollars to pick your own stocks. The bulk of an amateur investor's portfolio should go to experts and fund managers.

John

November 6, 2009 7:18 PM

I am now unemployed and find that I have enough time to look at investing. I think that you should spend a lot time on research before you invest because it is your hard earn cash that you are going to part with. I suppose you would have to do research fulltime if you wanted to become a Professional Investor. I suppose that some part time investors wouldn't have a lot of sparetime. The past 18 years I didn't have any spare time because I was a Taxi Driver and I drove the night shift. But now I've decided to put all this time into research and see how I go. I suppose that doesn't really matter how much time you put into research, it depends how dedicated you are and what it means to you.

Karl

February 2, 2010 9:59 AM

For someone with 10+ yrs business experience and who truly understands value investing and valuating companies, then you're operating a focussed portfolio of 5-10 stocks.

Given that the market offers very cheap companies only a few times a year, combined with your ability with $1m you'll be spending roughly 7 hours a week for 30% p.a. returns.

The % returns tail off as assets grow, but investing is best practiced part-time, because cheap stocks are infrequent and part-time work aids to patience and discipline.
Paradoxically, most professional investors waste 40+hrs a week on a socially useless activity, but it pays well ("Why do you rob banks?" "Because that's where the money is").

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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