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BLAYNEY: Generally, options are leveraged so they're better to be held, but there comes a point where you have to be prudently diversifying rather than running them to the last day in the holding period.
TIME: So you urge people to average out, to sell in regular increments?
BLAYNEY: Yes.
TIME: Are we at a point when individuals should just concede they don't have the time it takes to research stocks and should stick with mutual funds?
BLAYNEY: Not necessarily. We may be overlooking the obvious: How do you encapsulate an Enron? That's a company-specific risk, and without spending more time, you offset that kind of risk through diversification. I'm not going to pore through vast disclosures. I'm going back to basic advice.
SAUTER: If they are going to invest in stocks themselves, it's got to be a really strong avocation. Three-quarters of all professionals underperform their benchmark. It's hard to believe individuals are going to outmaneuver professionals.
TIME: Another risk is companies, like Kodak, where technology overtakes them.
PILGRIM: The nifty fifty [big stocks that were popular in the 1960s and '70s] are still dying, one at a time.
TIME: That's right. How do you know when the growth story is over?
PILGRIM: Pay attention to how sales and earnings are doing. If a company goes into a steady decline, like Kodak or Polaroid, you'll have many opportunities to observe that things are changing. Yes, there are bombshells when you wake up and your stock is down 40%. But there are many more cases of companies whose growth characteristics gradually begin to change. I don't think individuals have any business buying stocks. They don't know how to diversify; they don't know how to follow them. I think they should adopt a buy-and-hold strategy for a group of mutual funds and spend the rest of the time trying to improve themselves on their job.
TIME: Would you have said that 15 years ago: Don't buy individual stocks?
PILGRIM: Probably not, but that's more a reflection of my experience than that anything's changed. It's very hard to pick stocks, because companies' fortunes are constantly changing. How many stocks does it take to diversify that away? You might as well index.
MCKISSACK: I still think there's room for the hobbyist investor.
BLAYNEY: What's important is a sell discipline. When you would no longer buy a stock, you should sell it. People aren't good at that.
BARON: We own stocks 10 or 12 years. We're investing in companies that I think are going to double in four or five years, then double again, then double again. When do we sell? When we believe the stock won't double in four or five years--usually when we see their competitive advantages diminish.
MCKISSACK: When we initiate positions, we set a price target. We're willing to hold stocks for many years. But our price targets are always moving, based on changing fundamentals, and we'll sell when they reach those targets. That's consistent with the buy-and-hold strategy, which doesn't mean hold your entire life but enough years to allow the opportunity to evolve.
TIME: Are corporate failure rates rising?