rossington wrote: ↑Sun Nov 03, 2019 1:27 am
Northern Flicker wrote: ↑Sun Nov 03, 2019 12:24 am
Holding fewer stocks
increases the chances of losses and
increases uncompensated risk.
This is not true for
all investors.
But it's true for MOST investors. Why? Only 4% of all stocks create all the value of the market. Of the other 96% of stocks that DON'T create ANY value in the market, half of them do worse than a RISKLESS asset known as a t-bill. Don't search for a needle in the haystack when you can own the whole haystack. Don't take my word for it. Read all about it:
Most common stocks do not. Slightly more than four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns, inclusive of reinvested dividends, less than those on one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed companies.
source:
https://papers.ssrn.com/sol3/papers.cfm ... id=2900447
rossington wrote: ↑Sun Nov 03, 2019 1:27 am
Holding
any amount of stocks can definitely increase gains as well.
Only if you pick the one's that outperform the market, otherwise you would have done better holding the market. Do you think you'll find the 4% of all companies that create all the value of the market? Of course you do, otherwise you wouldn't bother trying. Best of luck considering the odds are greatly against you and there's no good reason to even try now that you can own the market and get the return of the market.
rossington wrote: ↑Sun Nov 03, 2019 1:27 am
Holding stock FUNDS makes one just as vulnerable to market downturns.
Well, of course, because you're taking market risk. That's the risk you have to take to get the market's return. No one ever said they weren't taking market risk. But the risks involved with owning the market are far less than owning individual companies which in essence is like buying a lottery ticket.
rossington wrote: ↑Sun Nov 03, 2019 1:27 am
Individual stocks can outperform a TSM index consistently.
"consistently"? wow, that's quite a statement. What individual stocks have consistently outperformed the TSM? Even Apple underperformed the market at times, especually when it almost went through bankruptcy. But that's such a distant memory and would never happen with your darlings of stocks, right?
rossington wrote: ↑Sun Nov 03, 2019 1:27 am
Are we investing because we want to be safe and not lose any money at any cost or do we want our money to grow and are willing to accept the risk?
Investing means taking risk. But actually, so does NOT investing. Why? People who don't invest take inflation risk, pure and simple. But investors take other kinds of risk. Now the thing is, buying individual stocks (which is speculating, not investing) causes you to take many risks which are not generally compensated. Some of these are: stock risk, size risk, style risk, sector risk, country risk, manager risk.
But the thing is, when you own the market you diversify away all those uncompensated risks. The only risk you're left taking is known as market risk. That's the risk you have to take to get the market's return. But you don't have to (and shouldn't) take all the other unnecessary/uncompensated risks.
rossington wrote: ↑Sun Nov 03, 2019 1:27 am
The risk can absolutely be worth it for certain investors....for others the risk is not worth taking.
No, actually, for most the risk is NOT worth taking. Only 20% of all active managers beat the market in a given year. Problem is, they don't continue to do this with any consistency. So over the long term you have a high probability of underperforming the market in the aggregate. Perhaps you're not familar with the research that's been done by SPIVA? If not see for yourself:
https://us.spindices.com/spiva/#/reports
The arithmetic of active management (individual stock selection) shows in the long run you must lose to the market. Don't take if from me, read from Nobel Prize winner William Sharpe:
https://web.stanford.edu/~wfsharpe/art/ ... active.htm
To borrow a quote, "You are entitled to your own opinions, but not your own facts." You've spouted many tropes, but I don't see any evidence to back up your claims. At least I've provided evidence in this post to substantiate my claims that buying individual stocks is the Loser's Game (Complements of Charles Ellis):
https://www.ifa.com/pdfs/ellis_charles_ ... e_1975.pdf