Facebook is in Trouble!

Yesterday, Facebook’s stock tanked after a 2Q earnings report showed that they missed revenue expectations. This can be indicative of slowing growth for Facebook, possibly the social media industry and even the stock market itself. Facebook will need to improve their performance, if they are to regain lost footing. It can indicate problems for social media companies, because many of them are parts of larger conglomerates and follow the same business models as Facebook. Facebook’s problems are mostly internal and independent of the market, but they can show the potential for a market drop.

Individual Stocks Are Volatile Investments

Always keep in mind that owning individual stocks is risky because you can be severely affected when downturns occur.  Bad press, bad business decisions, poor earnings or enhanced competition all contribute to the possibility of an individual stock falling in price.

Consider Other Investment Options

Mutual Funds(MFs) and Exchange Traded Funds(ETFs) mitigate your risk by holding a large number of individual stocks in their portfolio.  When the value of a single stock drops, it has a much smaller effect on the value of a diversified portfolio.  Why concentrate all your risk in one place, when you can easily and conveniently diversify?  MFs & ETFs give you the ability to own large asset classes (Large Cap Growth, Small Cap Value, etc.) with the convenience of a single purchase!  Additionally, individual stocks can go to ZERO.  This cannot happen with a MF or ETF.

History of Individual Stocks can be Scary

Let us not forget the demise of some very large and popular companies that eventually went bankrupt:

  • Enron
  • Pets.com
  • Worldcom
  • Lehman Brothers
  • Blockbuster
  • Circuit City
  • Pan Am
  • Polaroid

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