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Allison Schrager

Stock Picking Shouldn't Be Allowed for Everyone

Most people who own shares in individual companies don't really know what they're doing. Should the government set more guardrails?

There’s risk taking, and then there’s excessive risk taking.

There’s risk taking, and then there’s excessive risk taking.

Photographer: Jemal Countess/Getty Images 

Markets this year are putting the risk in risk premium. Any asset that typically pays more than a low-risk bond (or zero return) will expose you to losses from time to time, and that happened a lot last month. But that’s the deal: Risk is the cost of potentially higher gains. Some investors take more risk than others. If you face bigger losses than you can afford and don’t get an overall higher return out of it, you need to rethink your investing strategy. And if that describes you, then odds are you own individual stocks. As volatility comes back and the Memestock era ends, it's worth asking: Should retail investors even be allowed to own individual stocks?

That may sound extreme. After all, what embodies American capitalism better than buying a piece of a business you admire, or respect, or just think will make you rich? Except we set up guardrails and warnings when it comes to many other aspects of our lives, from data protection to buying a mattress. Yet taking on more risk than necessary, which is the essence of individual stock investments, is not only unrestricted, it's sometimes cheered on.