Passively managing individual stocks

Introduction
In "The Little Book of Common Sense Investing," Jack Bogle suggests that a reasonable alternative to an index fund for some investors would be to hold a well-diversified portfolio of individual stocks, as long as they are held long-term, with a minimum of trading costs incurred. This web page outlines some suggestions for how to build a portfolio of individual stocks to cover at least part of one's overall stock allocation. It will also attempt to summarize the advantages and possible pitfalls of doing so.

Note that the discussion here assumes that one is not trying to beat the market, but rather to create a "DIY index fund."

So why might one want to do this?

Taxes
Why might one not want to do this?

Psychology
Owning individual stocks instead of an index fund is kind of like seeing how sausage is made. Some of your stocks will rocket up, some will go out of business, and, due to the skewness mentioned above, the majority will underperform the market as a whole. The same things happen inside an index fund, of course, but hidden from view. While these gyrations can provide tax-savings opportunities, they also take some getting used to. Not everyone has the mindset to watch the sausage production process in their portfolio with equanimity. Know thyself.