I am a firm believer in mutual funds and in the power of diversification, but every now and then I find it useful to question my assumptions. I wrote recently about "creating your own personal mutual fund," questioning whether the decline in trading costs might motivate more investors to trade in large numbers of individual stocks, instead of mutual funds.
If I was to buy an individual stock, what would I buy? There is a lot of chatter these days, that there is no more alpha in the market — that stock prices reflect the true value of the stock — that there aren’t any hidden nuggets out there. While I’m not entirely sure I buy that premise, I do believe that the smaller the company, the fewer eyes are watching it.