Worried I am getting addicted to individual stocks.

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Darth Vanguard
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

inbox788 wrote:
A long time ago, I had about a dozen individual stocks, that I liquidated, but more than a decade later, I went back and looked at what might have been, and if I had held my position in Apple alone it would have been a winning strategy. The rest were like your list including United Airlines and Motorola. Eventually most companies die...
This has also been in the back of my mind. I have no exit strategy. While buy and hold is the best strategy, as demonstrated by some of the nifty fifty, it is not foolproof either. Another plus for an index fund- it will take care of the dying companies for you by also buying the new winners.

This experiment needs some refining.

I tend to agree with those who have said don't abandon all together, but work on reducing and streamlining. While it might not be ideal, I don't think the risk of catastrophic failure is too high either.
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

RAchip wrote: Thu Oct 31, 2019 4:01 pm I have a lot of money (8 figures) in an individual buy-and-hold stock portfolio (21 blue chip dividend paying stocks). All I can say is that this strategy has worked for me.
Thanks for the input.

Do you ever add/replace a stock? What factors do you consider if you do?
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Ferdinand2014
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Re: Worried I am getting addicted to individual stocks.

Post by Ferdinand2014 »

Darth Vanguard wrote: Thu Oct 31, 2019 12:22 pm Greetings,

I'm a long time lurker who has spent many a night perusing this site. I finally signed up as a member, and 7 months later, I am making my first post.

I'd like to get the group's opinion on my investment strategy and whether or not I am embarking on a slippery slope (or if I'm already sliding).

I am currently maxing out my 401k, HSA, and backdooring a non deductible IRA (all accounts are VG funds - mostly indexed with a few active funds). No debt.

At the end of the month, I still have some additional cash flow, and for the last year or so, I have been buying individual stocks. By no means do I have an exhaustive screening process which is somewhat worrisome. I have be adding primarily blue chip companies when they have a bad day/week/month - which was pretty easy to do in 4Q 2018. I am currently at approximately 30 stocks across many industries. My intent is to hold these stocks for the long term - 10+ years, and I am comfortable with the volatility that can come with individual stocks - even the "safer" ones.

My concern is this: The individual stock positions are approaching 35% of my investable assets and that percentage will increase if I continue on this path. How risky is this? Does the benefit of buying a stock "on sale" compensate for the additional risk of owning individual stocks? How much does the 10+ year time horizon help to mitigate the additional risk? Overall, my total equity exposure is about 75%, which I am fine with.

Trying to get a handle on if I should continue, freeze, or start to undo this strategy.

Thanks for any input,
I would stop this right now. I would never buy individual stocks. Besides individual stock risk, you create a mess of taxable events in the future if you need to rebalance or modify your asset allocation. On a global basis, only 1.3% of all stocks accounted for most of the gains above the return of treasury bills. I assume you know which these will be in the future?

https://www.investmentnews.com/article/ ... market-too
Last edited by Ferdinand2014 on Thu Oct 31, 2019 8:30 pm, edited 1 time in total.
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Darth Vanguard
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

Ferdinand2014 wrote: I would stop this right now. I would never buy individual stocks. Besides individual stock risk, you create a mess of taxable events in the future if you need to rebalance or modify your asset allocation. On a global basis, only 1.3% of all stocks accounted for most of the gains above the return of treasury bills. I assume you know which these will be in the future?

I have already created a bit of a tax issue in this particular account. I can rebalance around it in other accounts or with new contributions however. As time goes on it will become more problematic.
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RAchip
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Re: Worried I am getting addicted to individual stocks.

Post by RAchip »

Darth Vanguard wrote: Thu Oct 31, 2019 8:20 pm
RAchip wrote: Thu Oct 31, 2019 4:01 pm I have a lot of money (8 figures) in an individual buy-and-hold stock portfolio (21 blue chip dividend paying stocks). All I can say is that this strategy has worked for me.
Thanks for the input.

Do you ever add/replace a stock? What factors do you consider if you do?

I rarely sell but I have done so a few times. I used to own DuPont but when they announced the merger with Dow and the plan to split into 3 companies their business changed into something I didnt understand so I switched it for Walmart (which has since doubled in value). I only sell if something changes big about one of my companies that I dont like. Its rare.
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Re: Worried I am getting addicted to individual stocks.

Post by bluquark »

RAchip wrote: Thu Oct 31, 2019 4:01 pm I have a lot of money (8 figures) in an individual buy-and-hold stock portfolio (21 blue chip dividend paying stocks). All I can say is that this strategy has worked for me.
How does your total return compare to VTSAX?
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RAchip
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Re: Worried I am getting addicted to individual stocks.

Post by RAchip »

bluquark wrote: Thu Oct 31, 2019 9:24 pm
RAchip wrote: Thu Oct 31, 2019 4:01 pm I have a lot of money (8 figures) in an individual buy-and-hold stock portfolio (21 blue chip dividend paying stocks). All I can say is that this strategy has worked for me.
How does your total return compare to VTSAX?

I dont know how to calculate that since I am constantly adding to my portfolio.
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CyclingDuo
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Re: Worried I am getting addicted to individual stocks.

Post by CyclingDuo »

Darth Vanguard wrote: Thu Oct 31, 2019 12:22 pm Greetings,

I'm a long time lurker who has spent many a night perusing this site. I finally signed up as a member, and 7 months later, I am making my first post.

I'd like to get the group's opinion on my investment strategy and whether or not I am embarking on a slippery slope (or if I'm already sliding).

I am currently maxing out my 401k, HSA, and backdooring a non deductible IRA (all accounts are VG funds - mostly indexed with a few active funds). No debt.

At the end of the month, I still have some additional cash flow, and for the last year or so, I have been buying individual stocks. By no means do I have an exhaustive screening process which is somewhat worrisome. I have be adding primarily blue chip companies when they have a bad day/week/month - which was pretty easy to do in 4Q 2018. I am currently at approximately 30 stocks across many industries. My intent is to hold these stocks for the long term - 10+ years, and I am comfortable with the volatility that can come with individual stocks - even the "safer" ones.

My concern is this: The individual stock positions are approaching 35% of my investable assets and that percentage will increase if I continue on this path. How risky is this? Does the benefit of buying a stock "on sale" compensate for the additional risk of owning individual stocks? How much does the 10+ year time horizon help to mitigate the additional risk? Overall, my total equity exposure is about 75%, which I am fine with.

Trying to get a handle on if I should continue, freeze, or start to undo this strategy.

Thanks for any input,
Take a look at the studies cited at the Wiki...

https://www.bogleheads.org/wiki/Passive ... ual_stocks

In Common Sense on Mutual Funds, [1] 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.

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


Minimum of trading costs has been removed thanks to $0 commissions. There are no ER fees for individual stocks. DRIP's are free to reinvest dividends. Holding long term in a passively managed fashion while avoiding behavioral mistakes seem to be key issues of a DIY index fund strategy.
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nedsaid
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Re: Worried I am getting addicted to individual stocks.

Post by nedsaid »

Darth Vanguard wrote: Thu Oct 31, 2019 12:22 pm Greetings,

I'm a long time lurker who has spent many a night perusing this site. I finally signed up as a member, and 7 months later, I am making my first post.

I'd like to get the group's opinion on my investment strategy and whether or not I am embarking on a slippery slope (or if I'm already sliding).

I am currently maxing out my 401k, HSA, and backdooring a non deductible IRA (all accounts are VG funds - mostly indexed with a few active funds). No debt.

At the end of the month, I still have some additional cash flow, and for the last year or so, I have been buying individual stocks. By no means do I have an exhaustive screening process which is somewhat worrisome. I have be adding primarily blue chip companies when they have a bad day/week/month - which was pretty easy to do in 4Q 2018. I am currently at approximately 30 stocks across many industries. My intent is to hold these stocks for the long term - 10+ years, and I am comfortable with the volatility that can come with individual stocks - even the "safer" ones.

My concern is this: The individual stock positions are approaching 35% of my investable assets and that percentage will increase if I continue on this path. How risky is this? Does the benefit of buying a stock "on sale" compensate for the additional risk of owning individual stocks? How much does the 10+ year time horizon help to mitigate the additional risk? Overall, my total equity exposure is about 75%, which I am fine with.

Trying to get a handle on if I should continue, freeze, or start to undo this strategy.

Thanks for any input,
A 30 stock portfolio should get you around most of the "single stock" risk of having a stock blow up on you. Some tips. Diversify across industry sectors, buy in at reasonable prices, reinvest your dividends, have an average holding period of at least five years. Monitor your stocks enough to see if any of them are facing declining prospects going forward, don't worry about temporary problems but stocks with permanent problems that can't be fixed need to be sold. Problem is, it isn't easy to tell the difference between temporary and permanent problems. Don't get discouraged if a much loved stock blows up on you, this has happened to all of us with individual stocks. But mostly, you should be able to buy, hold, and reinvest dividends.

The less trading the better. I have often posted about the effect of incorrect sell/buy decisions. Stocks that you sell tend to do better than the stocks you buy to replace. The incorrect sell/buy decisions seem to happen at a 2:1 or even 3:1 ratio over the correct sell/buy decisions particularly in the shorter term. This is what I have dubbed the "Nedsaid effect." The buy decision is a relatively easy decision to make, the sell decision is a relatively difficult decision to make.

If you carefully pick your stocks, out of every five stocks you pick one will wildly outperform your expectations, three will perform about as expected, and one will bomb. The National Association of Investment Clubs set this guideline and it pretty much has held true for me.

As far as performance, you might trail the index a bit or beat it a bit over the long term if you do this right. Research shows that individuals picking stocks tend to trail the averages by about 4% a year. Larry Swedroe has an article on this somewhere, I looked for it some time back but couldn't find it. My recollection is usually pretty accurate. Big reasons are impatience, performance chasing, too much trading which produces the "Nedsaid effect." Most all of us are not going to be the next Peter Lynch or Warren Buffett.
A fool and his money are good for business.
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MrBobcat
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Re: Worried I am getting addicted to individual stocks.

Post by MrBobcat »

Darth Vanguard wrote: Thu Oct 31, 2019 1:16 pm
In January of this year I was able to sell some individual positions and purchase total market / 500 index mutual funds to replace them, and thus take advantage of TLH tactics that will pay off for several years.
If I could rewind the clock about 18 months, I would probably allocate some if not all to S&P or TSM. Since many of these were bought in 4Q, most positions are showing a gain, much of it short term - so undoing it becomes a bit tricky.

There is also something that feels good about buying a beaten up stock at a discount vs TSM or S&P at all time highs (talking about future personal investments).

Beware of hubris, I guess.

Thanks for the reply.

I've bought a few of those beat up stocks in past years. Unfortunately quite a number of them ended up being even bigger bargains later on.
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Re: Worried I am getting addicted to individual stocks.

Post by almostretired1965 »

I don't think it is a landmine so much as a possible slow leak. If your thirty stocks are fairly widely distributed as far as industries go, and you stick to blue chips, the odds are you will get something close to the large cap market return, with a bit more risk. Think DOW versus S&P500.

Who knows maybe you're the next Warren Buffet. The odds are you are not, but you'll find out soon enough. If I were you, I would make sure I'm calculating returns properly and comparing it against the right benchmark.

I certainly wouldn't do what you are doing since I know I have no special skills or knowledge for picking stocks and I believe the empirical literature that suggests net of fees, neither do the professionals. But to be a bit of a contrarian (to most others commenting on the thread), I don't think you'll get wiped out either .......

A
Darth Vanguard wrote: Thu Oct 31, 2019 3:12 pm
1789 wrote: Thu Oct 31, 2019 2:56 pm Dear Darth Vanguard,

Are you worried about performance of your 30 stocks?
I am not worried about the performance. I am just trying to ascertain if I'm tap dancing on a landmine with this strategy. So far this thread is reinforcing my concern that I am.
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

But to be a bit of a contrarian (to most others commenting on the thread), I don't think you'll get wiped out either .......
This is the conclusion I am arriving at as well. It might not be the best idea, but I don't think it is the worst either. Regardless, I am going to make it a priority to reduce the overall percentage allocated to individual stocks by putting future contributions into index funds. I should be able to get the ratio down to a more acceptable level in a reasonable timeframe.
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rich126
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Re: Worried I am getting addicted to individual stocks.

Post by rich126 »

People’s fear of individual stocks here and how they constantly talk about companies going to zero is pretty sad. No one should buy individual stocks and then ignore them for years, you need to track their industry and their profitability.

My concern is a lack of any process or reasoning in buying the stocks and a lack of an exit strategy for the stocks. Neither is easy and neither will be perfect nor needs to be completely rigid.

If you want to buy and forget I think an index is better.

They only stocks I’ve owned for decades came due to the old dividend reinvestment programs that some stocks had to allow people to buy without paying a commission. Pretty outdated now.

30 stocks is a lot to track and follow. I tend to have maybe 15 tops but they are not highly speculative stocks like Square, Roku, etc. but stocks like Berkshire, Apple, US Bancorp, etc. Even with those, I will sell when prices get too lofty and buy when they go down with the market but their profitability hasn’t really changed.

In my view the economy changes too much to buy a stock and put it away for decades. Apple alone has gone from highs to near bankruptcy to highs.

Anyhow good luck.
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Re: Worried I am getting addicted to individual stocks.

Post by mathguy3021 »

RAchip wrote: Thu Oct 31, 2019 8:39 pm
Darth Vanguard wrote: Thu Oct 31, 2019 8:20 pm
RAchip wrote: Thu Oct 31, 2019 4:01 pm I have a lot of money (8 figures) in an individual buy-and-hold stock portfolio (21 blue chip dividend paying stocks). All I can say is that this strategy has worked for me.
Thanks for the input.

Do you ever add/replace a stock? What factors do you consider if you do?

I rarely sell but I have done so a few times. I used to own DuPont but when they announced the merger with Dow and the plan to split into 3 companies their business changed into something I didnt understand so I switched it for Walmart (which has since doubled in value). I only sell if something changes big about one of my companies that I dont like. Its rare.
I have a small portion of my net worth in high quality large cap stocks. I think my investment philosophy for selecting individual stocks is similar to how you selected your 21 blue chip dividend paying stocks. I also rarely sell and buy and hold quality dividend growth stocks. I only hold companies whose businesses are easy to understand. My quality filtering process is fairly complex, but the result is a set of robust companies with incredible balance sheets and financials with low volatility.
arsenalfan
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Re: Worried I am getting addicted to individual stocks.

Post by arsenalfan »

You need a coherent IPS with an asset allocation.

Does it call for 35% in individual stocks? Fine if it does.

Track, evaluate, adjust as needed.

But have a clear plan.

Sounds like this may be “fun money” leftover? Except it is 35% of the portfolio? Fun in rising environment. Not so fun when the slump hits.
mathguy3021
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Re: Worried I am getting addicted to individual stocks.

Post by mathguy3021 »

Darth Vanguard wrote: Thu Oct 31, 2019 12:22 pm Greetings,

I'm a long time lurker who has spent many a night perusing this site. I finally signed up as a member, and 7 months later, I am making my first post.

I'd like to get the group's opinion on my investment strategy and whether or not I am embarking on a slippery slope (or if I'm already sliding).

I am currently maxing out my 401k, HSA, and backdooring a non deductible IRA (all accounts are VG funds - mostly indexed with a few active funds). No debt.

At the end of the month, I still have some additional cash flow, and for the last year or so, I have been buying individual stocks. By no means do I have an exhaustive screening process which is somewhat worrisome. I have be adding primarily blue chip companies when they have a bad day/week/month - which was pretty easy to do in 4Q 2018. I am currently at approximately 30 stocks across many industries. My intent is to hold these stocks for the long term - 10+ years, and I am comfortable with the volatility that can come with individual stocks - even the "safer" ones.

My concern is this: The individual stock positions are approaching 35% of my investable assets and that percentage will increase if I continue on this path. How risky is this? Does the benefit of buying a stock "on sale" compensate for the additional risk of owning individual stocks? How much does the 10+ year time horizon help to mitigate the additional risk? Overall, my total equity exposure is about 75%, which I am fine with.

Trying to get a handle on if I should continue, freeze, or start to undo this strategy.

Thanks for any input,
35% is far too much to have in individual stocks. Even if you've been successful and have lots of experience in managing stocks, 35% is way too much. At least you are buying blue chip companies across many industries with 30 stocks. This is a conservative way to pick stocks. Think of the Dow 30 stocks. Since I assume this is in a taxable account, if you don't have huge gains, I would sell tax efficiently, and move 25% out of the 35% into vanguard ETFs like VTI. I would not continue down this path of 35% or more even if you are good at picking stocks.
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Re: Worried I am getting addicted to individual stocks.

Post by inbox788 »

RAchip wrote: Fri Nov 01, 2019 7:54 am
bluquark wrote: Thu Oct 31, 2019 9:24 pm
RAchip wrote: Thu Oct 31, 2019 4:01 pm I have a lot of money (8 figures) in an individual buy-and-hold stock portfolio (21 blue chip dividend paying stocks). All I can say is that this strategy has worked for me.
How does your total return compare to VTSAX?

I dont know how to calculate that since I am constantly adding to my portfolio.
It’s a terribly time consuming task to properly track performance, keeping track of all the buys and any sells, all the dividends reinvested, and whatever corporate actions are taken. A ballpark estimate might be achieved if you took annual investments at some average vtsax cost, and you might reasonably compare a few decades. You can make even broader estimates, like how much you originally contributed over how many years, and whether they were even, growing or lumpy. If latter. Which years few years were your peak contributions? Big difference between 2007 and 2009 or 2000 vs. 2001.

Your broker might provide some metrics. Vanguard does a good job with their growth views. Anyway, how many years have you invested and what percentage was original investment vs. gains? Last 5 years SP went from 2000 to 3000, so if most of your investments from before 5 years ago grew 50%, you’re matching the market. What percentage did you add in the last 5 years? I asssume relatively small, so you can get an estimate of your recent performance.

Do you have Amazon or Facebook or Netflix? When did you add Apple? Which are your biggest gainers and dividend payers? Altria? I don’t know if you can beat the market without some of the high flying growth stocks over long periods. I thought growth beats dividend in the long run, but with higher volatility.
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Re: Worried I am getting addicted to individual stocks.

Post by rossington »

OP are your share numbers small or significant? The number of shares you own per company will determine your overall performance. Have you considered this?
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Re: Worried I am getting addicted to individual stocks.

Post by minimalistmarc »

mathguy3021 wrote: Fri Nov 01, 2019 11:27 pm
RAchip wrote: Thu Oct 31, 2019 8:39 pm
Darth Vanguard wrote: Thu Oct 31, 2019 8:20 pm
RAchip wrote: Thu Oct 31, 2019 4:01 pm I have a lot of money (8 figures) in an individual buy-and-hold stock portfolio (21 blue chip dividend paying stocks). All I can say is that this strategy has worked for me.
Thanks for the input.

Do you ever add/replace a stock? What factors do you consider if you do?

I rarely sell but I have done so a few times. I used to own DuPont but when they announced the merger with Dow and the plan to split into 3 companies their business changed into something I didnt understand so I switched it for Walmart (which has since doubled in value). I only sell if something changes big about one of my companies that I dont like. Its rare.
I have a small portion of my net worth in high quality large cap stocks. I think my investment philosophy for selecting individual stocks is similar to how you selected your 21 blue chip dividend paying stocks. I also rarely sell and buy and hold quality dividend growth stocks. I only hold companies whose businesses are easy to understand. My quality filtering process is fairly complex, but the result is a set of robust companies with incredible balance sheets and financials with low volatility.
You should become a fund manager. 90% of them can’t beat the index over 10 years so with your superior stock picking you would be a star manager. Just don’t give your secret away, otherwise it will immediately be completely priced in. :)
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

Since I assume this is in a taxable account, if you don't have huge gains, I would sell tax efficiently, and move 25% out of the 35% into vanguard ETFs like VTI.
It is taxable.

I started this mid 2018, with heavy buying in the 4Q, so I would have a meaningful tax hit. It will get a little better once 2020 rolls around and some of the STCG switches to LTCG.

Are you suggesting moving 25% out of the 35%, leaving 10% in individual stocks, or moving out just 1/4 of the 35%? I am guessing the former.
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

My concern is a lack of any process or reasoning in buying the stocks and a lack of an exit strategy for the stocks. Neither is easy and neither will be perfect nor needs to be completely rigid.
There is process and reasoning, granted it is by no means exhaustive. I am primarily buying quality companies that fell in price. That could be due to the overall market decline of 4Q, tariff fears, etc. Regardless, I believe the companies will recover.

As I plan to hold these for at least 5 years - these are investments, not speculations- I haven't defined my exit strategy yet.

Jump in the deep end and learn to swim , I guess. :)
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nedsaid
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Re: Worried I am getting addicted to individual stocks.

Post by nedsaid »

I wanted to say something else regarding the academic research regarding individuals who own individual stocks. Two more reasons that individuals underperform the markets: first they aren't very good stock pickers to begin with and second the stocks they sell tend to do better than what they buy to replace. Sound familiar? The latter is the infamous "Nedsaid effect."
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Re: Worried I am getting addicted to individual stocks.

Post by milktoast »

At least they aren’t 30 tech stocks or similar concentration.

Maybe you are addicted to tracking and manipulating.

If so, just hold those stocks. And see how quickly you can hit the 30% 25% .. 10% of portfolio in individual stocks buy buying index.
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nedsaid
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Re: Worried I am getting addicted to individual stocks.

Post by nedsaid »

Another complicating factor in running an individual stock portfolio is that some stocks will do better than others over time and you might find yourself top heavy in a few stocks. This has been my experience, I tend to let the winners run. It is a tough decision whether or not to rebalance your individual stocks as you are selling some of the gains from your big winners. You grow to appreciate what portfolio managers do.
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Prettyfrtnt
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Re: Worried I am getting addicted to individual stocks.

Post by Prettyfrtnt »

I’m afraid I’m getting addicted to VTI. It’s really addictive.
TravelforFun
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Re: Worried I am getting addicted to individual stocks.

Post by TravelforFun »

I did not read all the posts but how did you select your stocks? Is there a valuation method that you use consistently before you chose to buy or sell them?

TravelforFun
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

TravelforFun wrote: Sat Nov 02, 2019 7:39 pm I did not read all the posts but how did you select your stocks? Is there a valuation method that you use consistently before you chose to buy or sell them?

TravelforFun
I have been buying primarily blue chip stocks that have had a recent price drop. By no means is it a rigorous process. I figure by focusing on blue chips, that lets me be a bit more lax on the screening process.

It is a bit more involved than that, but that is the gist of it.
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Re: Worried I am getting addicted to individual stocks.

Post by Rosencrantz1 »

I read this with interest. For many years, I bought individual stocks - and, generally speaking, I'd say I underperformed the market a bit. I still own some individual stocks (that I've owned for many years) because I like the industries and management - Walmart and Apple come to mind. Lately, I've been trying to winnow down the number of individual stocks. What I've become attracted to now - and this is likely considered similar to individual stocks by folks on this site - are sector ETFs. VGT, VIG, MGK, and XAR have been favorites over the last few years. Still trying to keep the bulk of equity investments in VOO, though.
mathguy3021
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Re: Worried I am getting addicted to individual stocks.

Post by mathguy3021 »

Darth Vanguard wrote: Sat Nov 02, 2019 8:29 am
Since I assume this is in a taxable account, if you don't have huge gains, I would sell tax efficiently, and move 25% out of the 35% into vanguard ETFs like VTI.
It is taxable.

I started this mid 2018, with heavy buying in the 4Q, so I would have a meaningful tax hit. It will get a little better once 2020 rolls around and some of the STCG switches to LTCG.

Are you suggesting moving 25% out of the 35%, leaving 10% in individual stocks, or moving out just 1/4 of the 35%? I am guessing the former.
I am saying to keep 10% in individual stocks. This is if you are interested in selecting and managing stocks. Wait for long term capital gains before selling a stock with gains, if you are close to the one year mark.
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Re: Worried I am getting addicted to individual stocks.

Post by arcticpineapplecorp. »

the best treatment for addiction is abstaining (or abstinence). Try that.

If you stop your addiction, then you'll have no worries anymore so there's no treatment necessary for your "worries".
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Re: Worried I am getting addicted to individual stocks.

Post by firebirdparts »

For me it was self correcting. I lost all the money.
This time is the same
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Re: Worried I am getting addicted to individual stocks.

Post by Northern Flicker »

guwop wrote: Thu Oct 31, 2019 5:31 pm Perhaps you don't need THAT many individual stocks. Why not just stick to five or so and buy aggressively when opportunity strikes? You are limiting your gains, and increasing chances of losses by holding so many, albeit blue chips.
Holding fewer stocks increases the chances of losses and increases uncompensated risk.
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Re: Worried I am getting addicted to individual stocks.

Post by rossington »

Northern Flicker wrote: Sun Nov 03, 2019 12:24 am
guwop wrote: Thu Oct 31, 2019 5:31 pm Perhaps you don't need THAT many individual stocks. Why not just stick to five or so and buy aggressively when opportunity strikes? You are limiting your gains, and increasing chances of losses by holding so many, albeit blue chips.
Holding fewer stocks increases the chances of losses and increases uncompensated risk.
This is not true for all investors. Holding any amount of stocks can definitely increase gains as well. Holding stock FUNDS makes one just as vulnerable to market downturns. Individual stocks can outperform a TSM index consistently. 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? The risk can absolutely be worth it for certain investors....for others the risk is not worth taking.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: Worried I am getting addicted to individual stocks.

Post by bgf »

nedsaid wrote: Sat Nov 02, 2019 12:23 pm Another complicating factor in running an individual stock portfolio is that some stocks will do better than others over time and you might find yourself top heavy in a few stocks. This has been my experience, I tend to let the winners run. It is a tough decision whether or not to rebalance your individual stocks as you are selling some of the gains from your big winners. You grow to appreciate what portfolio managers do.
good points. OP has already picked them, so the only thing left to do is just hold them and not sell/tinker. very hard to do. i think it makes the most sense, if you invest in individual stocks, to not sell them. your goal is to outperform, and the best chance you have of that is not by trading, but by catching a longterm ride on a great outperformer. of course, you may not catch one at all! so many stories of those who sold apple, or amazon, etc would have been avoided if they'd just 'done nothing.'

also, the more you trade the more you might be led into thinking you have some edge in doing so. on the other hand, if you just buy and do nothing, its a little easier to realize you just got lucky, picked a great company, and let it keep doing its thing.
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Re: Worried I am getting addicted to individual stocks.

Post by inbox788 »

bgf wrote: Sun Nov 03, 2019 5:24 amgood points. OP has already picked them, so the only thing left to do is just hold them and not sell/tinker. very hard to do. i think it makes the most sense, if you invest in individual stocks, to not sell them. your goal is to outperform, and the best chance you have of that is not by trading, but by catching a longterm ride on a great outperformer. of course, you may not catch one at all! so many stories of those who sold apple, or amazon, etc would have been avoided if they'd just 'done nothing.'

also, the more you trade the more you might be led into thinking you have some edge in doing so. on the other hand, if you just buy and do nothing, its a little easier to realize you just got lucky, picked a great company, and let it keep doing its thing.
That's just survival bias. There's plenty of people who bough individual stocks (not Apple, Amazon or Netflix), but didn't catch even one of the high fliers and some have done alright, while other not so good. You don't hear those stories because the outcomes didn't stand out and as they invested in other things, didn't pay attention.

And if the folks that sold Amazon and Apple actually held on to their shares, someone else couldn't have bought them and brag about how much they gained. And as widely held as these 2 companies are, most portfolios are underweight; at least market cap weight market funds are about 7% into these stocks. (FWIW, BRK is 300% overweight AAPL and nearly 0% or nearly 100% underweight in AMZN https://www.cnbc.com/berkshire-hathaway-portfolio/
and I don't see either stock in Wellington and Wesley to holdings https://investor.vanguard.com/mutual-fu ... olio/vwinx https://investor.vanguard.com/mutual-fu ... olio/vwelx )

There's really little difference between buy or hold, other than taxes (at today's prices, would OP spend cash to buy these individual holdings). OP just has to admit he's got a portion of his portfolio that's under his active management and manage it. If he's a good manager, he might beat the market, but the easiest and best course of action is to just follow the advice of this board and diversify into a low cost index fund in a tax efficient manner.
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Re: Worried I am getting addicted to individual stocks.

Post by bgf »

inbox788 wrote: Sun Nov 03, 2019 12:12 pm
bgf wrote: Sun Nov 03, 2019 5:24 amgood points. OP has already picked them, so the only thing left to do is just hold them and not sell/tinker. very hard to do. i think it makes the most sense, if you invest in individual stocks, to not sell them. your goal is to outperform, and the best chance you have of that is not by trading, but by catching a longterm ride on a great outperformer. of course, you may not catch one at all! so many stories of those who sold apple, or amazon, etc would have been avoided if they'd just 'done nothing.'

also, the more you trade the more you might be led into thinking you have some edge in doing so. on the other hand, if you just buy and do nothing, its a little easier to realize you just got lucky, picked a great company, and let it keep doing its thing.
That's just survival bias. There's plenty of people who bough individual stocks (not Apple, Amazon or Netflix), but didn't catch even one of the high fliers and some have done alright, while other not so good. You don't hear those stories because the outcomes didn't stand out and as they invested in other things, didn't pay attention.

And if the folks that sold Amazon and Apple actually held on to their shares, someone else couldn't have bought them and brag about how much they gained. And as widely held as these 2 companies are, most portfolios are underweight; at least market cap weight market funds are about 7% into these stocks. (FWIW, BRK is 300% overweight AAPL and nearly 0% or nearly 100% underweight in AMZN https://www.cnbc.com/berkshire-hathaway-portfolio/
and I don't see either stock in Wellington and Wesley to holdings https://investor.vanguard.com/mutual-fu ... olio/vwinx https://investor.vanguard.com/mutual-fu ... olio/vwelx )

There's really little difference between buy or hold, other than taxes (at today's prices, would OP spend cash to buy these individual holdings). OP just has to admit he's got a portion of his portfolio that's under his active management and manage it. If he's a good manager, he might beat the market, but the easiest and best course of action is to just follow the advice of this board and diversify into a low cost index fund in a tax efficient manner.
no, its not survivorship bias. most stocks underperform the market, but the few that don't greatly outperform it. you'll only ever benefit by hitting one of those outperformers if you hold onto it for a long period of time. many people hit on them only to hold them for too short a period of time.

buy and hold is certainly no guarantee of superior results, but it beats trading. even in the absence of transaction costs and taxes, trading makes you susceptible to your own biases over and over and over again. each additional decision works against you unless you have an edge. at least with buy and hold you make a few decisions, maybe 5-10, and you'll either be wealthy in 25 years or you wont. but it at least wont be death by 1000 cuts like trading.

of course, if you have an edge, increasing the number of trades doesnt work against you. im assuming OP has no discernible quantifiable edge.
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Re: Worried I am getting addicted to individual stocks.

Post by FrugalInvestor »

Darth Vanguard wrote: Thu Oct 31, 2019 3:17 pm
KlangFool wrote: Thu Oct 31, 2019 3:05 pm OP,

If you believe active management can win the game, why settle for anything but the best. Just hire Warren Buffett to do the job for you. Aka, invest in BRK.A or BRK.B and you are done. Or, to a lesser degree, invest your money in the Wellington Fund or Wellesley Fund.

Please explain to me why do you think you could do a better job than either alternative.

KlangFool
I'm not making the claim that I can do better. I just started this as a way to compliment a largely passive approach, and it is now getting to the point where it could have a more meaningful impact.

Thanks to all for the helpful insights so far!
How are you "complementing a largely passive approach?" A largely if not completely passive approach is likely the best you can do in the long term. Is reducing that likelihood complementary? (I'm assuming you meant complementing rather than complimenting).
Have a plan, stay the course and simplify. Then ignore the noise!
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Re: Worried I am getting addicted to individual stocks.

Post by arcticpineapplecorp. »

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
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Re: Worried I am getting addicted to individual stocks.

Post by Investnewbie01 »

I dabble in individual shares with the philosophy “Invest what you can afford to loose” in 2 years doing well, well above inflation and total investments up by more than 63%. One Shopify bought at 40 and was sorely tempted to take initial investment out at 400 and play with “House money” ( as Cramer would say) but have decided to run the course. As you are young you have time on your side, so run with it. After all how much do you spend on eating out and sodas/ coffee? See it as an alternative, but invest your balk as suggested.
However not to be too morbid not everyone lives past 80 , so enjoy it for yourself!
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Re: Worried I am getting addicted to individual stocks.

Post by inbox788 »

bgf wrote: Sun Nov 03, 2019 1:20 pmno, its not survivorship bias. most stocks underperform the market, but the few that don't greatly outperform it. you'll only ever benefit by hitting one of those outperformers if you hold onto it for a long period of time. many people hit on them only to hold them for too short a period of time.
IMO, to conclude to hold on to an arbitrary basket of individual stocks from these assumptions is the definition of survivorship bias. OP is more likely NOT to have one of these long term outperformers in his basket, and holding on to a basket of underperforming stocks for a long period of time is only going to be forgotten. When you average out all the losing baskets you didn't count, it all should average out to the market performance minus fees and costs. There is no expectation of outperformance.
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Re: Worried I am getting addicted to individual stocks.

Post by KingRiggs »

I don’t have the time, energy, or inclination to research, but, and track individual stocks.

But you do you. Only several years will tell if your approach was “right”. Sincerely wish you the best of fortunes.
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Re: Worried I am getting addicted to individual stocks.

Post by bgf »

inbox788 wrote: Sun Nov 03, 2019 2:21 pm
bgf wrote: Sun Nov 03, 2019 1:20 pmno, its not survivorship bias. most stocks underperform the market, but the few that don't greatly outperform it. you'll only ever benefit by hitting one of those outperformers if you hold onto it for a long period of time. many people hit on them only to hold them for too short a period of time.
IMO, to conclude to hold on to an arbitrary basket of individual stocks from these assumptions is the definition of survivorship bias. OP is more likely NOT to have one of these long term outperformers in his basket, and holding on to a basket of underperforming stocks for a long period of time is only going to be forgotten. When you average out all the losing baskets you didn't count, it all should average out to the market performance minus fees and costs. There is no expectation of outperformance.
you are missing my point. i understand what survivorship bias is, and what im saying doesnt suffer from that. ive also never said OP has any expectation of outperformance. in fact, i think i said the opposite when i noted that OP has no edge.

my point is that, starting here, in medias res, with 30 stocks in a portfolio, the best path between trading and holding what he has, he should hold what he has. if you disagree, thats fine. but disagreeing 'bc survivorship bias' makes no sense.

EDIT* another way to put it is this - if i were offered the bet to take OPs portfolio as it is today or to take his performance over 20 years of active trading, i would bet on his portfolio as it is today with no trades at all. in 20 years, i bet the 'dead portfolio' would have more money.
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Re: Worried I am getting addicted to individual stocks.

Post by arcticpineapplecorp. »

one other thought for the OP, from Jonathan Clement's most recent article at Humble Dollar:

https://humbledollar.com/2019/11/cash-back/
Consider the 90 years through December 2016. According to a study by Hendrik Bessembinder, a professor at Arizona State University, there were almost 26,000 publicly traded U.S. companies during this stretch. They were listed for an average of just seven and a half years. Some of the companies that disappeared would have been bought out—but many others would have been delisted as they struggled financially on their way to extinction. In fact, only 36 stocks were around for the full 90 years.

To get a sense for corporate America’s constant upheaval, check out the American Business History Center’s ranking of the largest U.S. companies, based on revenues. (https://americanbusinesshistory.org/lar ... 1994-2018/). Hit the replay button at the top of the page and you’ll see how, over an astonishingly short 24 years, General Motors and Ford Motor were toppled from the top of the ranking, while Apple, Berkshire Hathaway and Amazon soared to claim three of the top five spots.

We look around us and imagine that today’s largest corporations will always be with us, but that simply isn’t the case.

source: https://humbledollar.com/2019/11/cash-back/
best of luck. you're gonna need it.
Last edited by arcticpineapplecorp. on Sun Nov 03, 2019 6:49 pm, edited 1 time in total.
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Re: Worried I am getting addicted to individual stocks.

Post by inbox788 »

bgf wrote: Sun Nov 03, 2019 4:47 pmyou are missing my point. i understand what survivorship bias is, and what im saying doesnt suffer from that. ive also never said OP has any expectation of outperformance. in fact, i think i said the opposite when i noted that OP has no edge.

my point is that, starting here, in medias res, with 30 stocks in a portfolio, the best path between trading and holding what he has, he should hold what he has. if you disagree, thats fine. but disagreeing 'bc survivorship bias' makes no sense.

EDIT* another way to put it is this - if i were offered the bet to take OPs portfolio as it is today or to take his performance over 20 years of active trading, i would bet on his portfolio as it is today with no trades at all. in 20 years, i bet the 'dead portfolio' would have more money.
I'm not in disagreement with some of the things you're saying, but comparing to a bad expensive active trading strategy isn't a winning strategy any more then putting cash under the mattress beats investing in bonds (I'll rethink that when bonds go negative double digits). You are lumping all active trading into one big bad group. Most active trading fails to beat the market because of the excess fees and costs, and not necessarily from all the trading. You can look at Wellington/Wesley or Contrafund and call that survival bias, or consider the strategies of low cost, large fund size efficiency, low turnover, and some skill in stock picking. But if you compare the components and correlation, you will find that they're all somewhat closet index funds.
bgf wrote: Sun Nov 03, 2019 5:24 amyour goal is to outperform, and the best chance you have of that is not by trading, but by catching a longterm ride on a great outperformer. of course, you may not catch one at all!
You said it best, that you may not catch one at all. And IMO, you won't likely catch one with an arbitrary 30 stock portfolio like OPs, or any 30 stock portfolio. I've seen the studies that show skewness in performance that you described with individual stocks where most underperform the average market, and I think that applies as you combine them in to small baskets as well. Larger baskets tend to track the average and I call them closet index funds.

Most small baskets won't beat the market either. And today, trading fees are minimal, with trading commissions down to zero, so you could almost trade for the fee of the spreads. Trading individual stocks doesn't involve the drag from expense fees.

If I was to take on the bet against 'dead portfolio', I'd just sell it all and buy TSM, or Wellington/Wesley or Contrafund, and I think I'd have a good chance of beating it (tax costs not withstanding). Alternatively, I believe slowly transforming 'dead portfolio' into a closet index fund, say over 3-5 years or even longer, is also a winning strategy. (If I can't just buy a low cost index fund, I'll build one as close as I can for as inexpensively as possible). I'm basically betting that you'd didn't start off with big winners, and you'll underperform the market as I try to match it, beating you by a small margin. If you got lucky and pick a big winner or two, the you'll likely beat me by a big margin.

Can my active strategy expand beyond 30 stocks? Even if not, I think replacing the smaller market cap stocks in the 'dead portfolio' with mega caps reduces my variability. That's it, once a quarter, my programmed active trading strategy would be to sell the smallest cap stock in 'dead portfolio' or any arbitrary 30 stock portfolio and buy the largest cap in the SP500 that I don't already hold, until I wind up with the 30 largest caps stocks in the SP500.

OP can use a similar strategy to get out of his individual stocks if he chooses, taking into account tax liabilities issues, though it's probably simpler and better to buy directly into an index fund.
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Re: Worried I am getting addicted to individual stocks.

Post by inbox788 »

Darth Vanguard wrote: Sat Nov 02, 2019 8:29 am
Since I assume this is in a taxable account, if you don't have huge gains, I would sell tax efficiently, and move 25% out of the 35% into vanguard ETFs like VTI.
It is taxable.

I started this mid 2018, with heavy buying in the 4Q, so I would have a meaningful tax hit. It will get a little better once 2020 rolls around and some of the STCG switches to LTCG.

Are you suggesting moving 25% out of the 35%, leaving 10% in individual stocks, or moving out just 1/4 of the 35%? I am guessing the former.
The tax problem is only going to get worse. Market is up about 20% from the dip end of last year and quickly recovered mostly by March 1, 2019. Since then, the market is up 7%. How have your holdings done since March 1?

Why 2020 and not mid 2019 to 4Q 2019 (now to end of year)? What's your expected capital tax rates this year and next? Does it make sense to split profits across tax years to stay below any thresholds?

I think it's better to pay taxes on 20% gains or less now on an individual stock and defer taxes on 100% or 200% gains in 10 years in VTI (that you can hold forever) than to be asking yourself what to do with 200% gains on an individual stock in 10 years.
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

inbox788 wrote: Sun Nov 03, 2019 7:29 pm
Darth Vanguard wrote: Sat Nov 02, 2019 8:29 am
Since I assume this is in a taxable account, if you don't have huge gains, I would sell tax efficiently, and move 25% out of the 35% into vanguard ETFs like VTI.
It is taxable.

I started this mid 2018, with heavy buying in the 4Q, so I would have a meaningful tax hit. It will get a little better once 2020 rolls around and some of the STCG switches to LTCG.

Are you suggesting moving 25% out of the 35%, leaving 10% in individual stocks, or moving out just 1/4 of the 35%? I am guessing the former.
The tax problem is only going to get worse. Market is up about 20% from the dip end of last year and quickly recovered mostly by March 1, 2019. Since then, the market is up 7%. How have your holdings done since March 1?

Why 2020 and not mid 2019 to 4Q 2019 (now to end of year)? What's your expected capital tax rates this year and next? Does it make sense to split profits across tax years to stay below any thresholds?

I think it's better to pay taxes on 20% gains or less now on an individual stock and defer taxes on 100% or 200% gains in 10 years in VTI (that you can hold forever) than to be asking yourself what to do with 200% gains on an individual stock in 10 years.
Either way I'd be at 20% for the LTCG.
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Re: Worried I am getting addicted to individual stocks.

Post by Wiggums »

KlangFool wrote: Thu Oct 31, 2019 3:22 pm
Darth Vanguard wrote: Thu Oct 31, 2019 3:17 pm
KlangFool wrote: Thu Oct 31, 2019 3:05 pm OP,

If you believe active management can win the game, why settle for anything but the best. Just hire Warren Buffett to do the job for you. Aka, invest in BRK.A or BRK.B and you are done. Or, to a lesser degree, invest your money in the Wellington Fund or Wellesley Fund.

Please explain to me why do you think you could do a better job than either alternative.

KlangFool
I'm not making the claim that I can do better. I just started this as a way to compliment a largely passive approach, and it is now getting to the point where it could have a more meaningful impact.

Thanks to all for the helpful insights so far!
I lost 50% of my whole life savings up to the point by gambling on Telecom stocks during the Telecom bust. Please do not repeat my mistake. It is hard to notice when you go down that slope. Then, it is too late to get out.

Lucent Technologies was a blue-chip stock too.

KlangFool
Two coworkers of mine worked at AT&T then Lucent technologies. They watched their stock go from something like $87/share to below $1. It was horrible.
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Re: Worried I am getting addicted to individual stocks.

Post by Northern Flicker »

rossington wrote: Sun Nov 03, 2019 1:27 am
Northern Flicker wrote: Sun Nov 03, 2019 12:24 am
guwop wrote: Thu Oct 31, 2019 5:31 pm Perhaps you don't need THAT many individual stocks. Why not just stick to five or so and buy aggressively when opportunity strikes? You are limiting your gains, and increasing chances of losses by holding so many, albeit blue chips.
Holding fewer stocks increases the chances of losses and increases uncompensated risk.
This is not true for all investors. Holding any amount of stocks can definitely increase gains as well. Holding stock FUNDS makes one just as vulnerable to market downturns. Individual stocks can outperform a TSM index consistently. 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? The risk can absolutely be worth it for certain investors....for others the risk is not worth taking.
It is uncompensated risk. The expected return of an individual stock does not compensate you for taking the risks unique to that stock. Here is some more description of the issue:

viewtopic.php?f=10&t=294025&p=4822221#p4822221
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Re: Worried I am getting addicted to individual stocks.

Post by Darth Vanguard »

Darth Vanguard wrote: Thu Oct 31, 2019 8:20 pm
RAchip wrote: Thu Oct 31, 2019 4:01 pm I have a lot of money (8 figures) in an individual buy-and-hold stock portfolio (21 blue chip dividend paying stocks). All I can say is that this strategy has worked for me.
Thanks for the input.

Do you ever add/replace a stock? What factors do you consider if you do?
If you don't mind disclosing, what % does your individual stock portfolio represent of your total investment portfolio?
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Re: Worried I am getting addicted to individual stocks.

Post by rossington »

arcticpineapplecorp. wrote: Sun Nov 03, 2019 2:01 pm At least I've provided evidence in this post to substantiate my claims that buying individual stocks is the Loser's Game
Thank you for the links...appreciate it.
But I must ask are you adamantly saying that no one should invest in individual stocks because it is impossible to increase the value of their investment and it will 100% of the time result in a loss?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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