One Stock Portfolio

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
DanFFA
Posts: 18
Joined: Sun Jan 24, 2021 10:05 pm

Re: One Stock Portfolio

Post by DanFFA »

That takes some very uhhh interesting thought processing but hey, to each their own. Everyone's gotta have their conviction in something. :|
Topic Author
ZenZero
Posts: 69
Joined: Tue Jun 22, 2021 7:41 pm

Re: One Stock Portfolio

Post by ZenZero »

muffins14 wrote: Wed Jun 23, 2021 3:40 pm This seems like a waste of time. Here are 3 better things to do that likely have the same if not better expected portfolio value

1) invest all in VT and invest your free time from not extensively study stocks into volunteer work
2) invest all in VT and invest your free time from not extensively study stocks into getting better at your job + getting promotions
3) choose 1 stock at random from the S&P 500 and then invest all the rest in VT and invest your free time from not extensively study stocks into a fun new hobby
Glad that you brought VT into the discussion. I have observed people prefer VT and/or VTI over S&P 500 index because they argue every time a company gets added or subtracted from it, there are frictional costs due to security supply and demand issues and related arbitrage opportunities enjoyed by computing algorithms, etc. But then what about highly overpriced SPACs, IPOs, etc. that get added to the total market? Don't they cause frictional costs to VT and VTI? As least S&P 500 doesn't get all that crap.
Da5id
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Joined: Fri Feb 26, 2016 8:20 am

Re: One Stock Portfolio

Post by Da5id »

ZenZero wrote: Wed Jun 23, 2021 4:02 pm Glad that you brought VT into the discussion. I have observed people prefer VT and/or VTI over S&P 500 index because they argue every time a company gets added or subtracted from it, there are frictional costs due to security supply and demand issues and related arbitrage opportunities enjoyed by computing algorithms, etc. But then what about highly overpriced SPACs, IPOs, etc. that get added to the total market? Don't they cause frictional costs to VT and VTI? As least S&P 500 doesn't get all that crap.
You perhaps are overthinking this, or believing that things that matter lots don't. Vanguard Total has very slightly outperformed the S&P 500 since inception, per below, but they track quite closely overall.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
Topic Author
ZenZero
Posts: 69
Joined: Tue Jun 22, 2021 7:41 pm

Re: One Stock Portfolio

Post by ZenZero »

Da5id wrote: Wed Jun 23, 2021 4:08 pm You perhaps are overthinking this, or believing that things that matter lots don't. Vanguard Total has very slightly outperformed the S&P 500 since inception, per below, but they track quite closely overall.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
Yes, I agree. Although, I think S&P 500 slightly outperforms total market during recessions and total market slightly outperforms S&P 500 in bull market, particularly towards the end of it.
fwellimort
Posts: 782
Joined: Tue Feb 12, 2019 9:41 am

Re: One Stock Portfolio

Post by fwellimort »

Some people enjoy learning/studying about the market in their free time.

I alone already spent several thousands of hours to learn how markets work. And even now, I'm absolutely clueless.
If it's your hobby, then kudos to you.
(I focused in computer science and math during college. Doesn't stop me from learning other topics so it shouldn't stop anyone else who has access to the Internet.)

The opportunity cost of individuals learning the stock market is quite something.
If you learn enough to be better than the average professionals (which is honestly, quite low if you worked at Wall Street), then that much time could have been used to further your career or enjoying your life doing something else.

Say 'grinding' in your free time with some good luck will beat the market by 2% a year. Well:
1. You don't have much money to start with. 2% increase isn't noticeable in your lifetime anyways so you will be retiring around the same time as those who just held index funds.
2. You have millions of dollars to start with. Is 2% increase really that important at this point when you are trading all your finite time? Money is just an abstract representation of time.

Those with enough capital to make a difference with say 2% more CAVG are already more than well off to not worry about money in first place.
Those without capital isn't really going to see any difference for decades.

Then there's all that fear/pain/worry/stress one has to endure. It certainly ain't fun to buy AMD and see it immediately tank 30%.
Buy high sell low is quite common in this industry for a good reason :beer

Also, don't forget good companies often trade at a high premium. So to buy a 'good company', you need to accept higher valuations which might bring more fear/worry/stress in market downturns.
I mean look at all the people crying how high the P/E ratios were for Microsoft, Amazon, Google, Walmart, etc. forever now. Yet, those were exactly the companies to hold long term. 'Value investing' is not just by some random metric. Some companies are honestly 'cheap' even with negative/low earnings in the short term.
But then here's the other side of coin. How do you know if you are overpaying then.

Problem also with individual stock picking is you might be willing to take far less risks than the market.
For instance, maybe you don't have the risk appetite to invest in companies like Tesla. I certainly don't. Nor would I ever short that company.
But with single stock picking, if you pick more financially sound firms, then you might be missing out on companies like Tesla that might be prove to be game changing in its own industries. Who knows.

I would just do single stock picking as a 'hobby' and no more.
I am fortunate in that if I really want to learn how to value stocks (traditional sense) in the corporate world, I have my father who has worked (and is still working) in this field all his working career.
And that I have personally evidenced the average caliber of 'Wall Street professionals' (by having worked at Wall Street).
Back in late 2018, one of the higher ups said 'we are going to go through a bear market'. Guess what. A lot of employees (who are professionals) pulled out. I looked at valuations and instead pulled in. I sold all my bonds and went all in 100% stocks (and have since kept that allocation).
Same in 2020. In March, when my father was worried about a big market downturn, I told my father to go all in stocks. Treasuries were yielding basically 0%. And all investments should be based off risk free rate. If risk free rate is 0% (if not negative in some parts of world), then stocks with 6% expected return should be the default. Turns out, going into stocks again was the right choice (though the V shaped run up was completely unexpected).

The average professional in Wall Street aren't from top schools (plus, I think Columbia Univ in NY [my alma mater] isn't too shabby itself).
And even the ones that are from top schools have no real motivation to learn the stock market.
They are all there for the paycheck (9 to 5). That's really it.
Individuals can definitely outperform professionals if individuals really put in their time/due diligence.
Problem is the opportunity cost.
How much time will you be spending to be above average. Time in and of itself is a fee. Sure it's not a 'fee' cause your own free time isn't 'charged' but it is a fee in that you miss out everything else in meantime.

Anyways, I'm a perma bull on the stock market. So there's that issue.
I think Microsoft will continue to surprise me in the near future (it certainly has been surprising me for some time now). I would have said the same for Amazon but Amazon has been treating its employees very poorly and since that is an uncertainty in the short term, I just leave the total market index fund to judge companies like those.
I also know that there's been huge front-run growth at these tech giants in the US and that might result in a period of stagnation in market prices. But I also understand richer valuations is not all-telling in a world of lower interest rates. My father readily admitted since the pandemic, asset prices have gone so high across the board that even his peers (including him) have no idea anymore. But at same time, these professionals hold because the future is uncertain (will markets correct or is this the new norm).

I really believe that long term, as more countries abroad obtain better education, the younger generation will trust more and more to the stock market. Robinhood like effect (easy access to stock trading) will result long term globally. My father is already noting it in Korea, a country in which the older generation is fearful of the stock market, the younger generation is becoming more and more interested in the stock market.
I see the current times to be a great golden age of investing to come globally. As world gets more connected, we will see many younger generation of investors abroad (Korea, China, Turkey, etc.) invest more into stocks (especially with the fee lowering + real estate valued so high that there's no other viable alternative + western education biases towards knowledge about US markets and US markets have only gone up historically).

Just note if you invest in the index, you are guaranteed to do average which has historically in the US made you live quite a fascinating life.
But if you go active, then there's no guarantee of such.

Also, I always found the 'tech is overvalued' or 'tech sector is too concentrated' group to be the weirdest.
Today's top tech companies aren't like the dot com tech companies. Dot com tech companies didn't make money while the traditional firms did. Today, it's the other way around with most companies unable to profit outside top tech companies.
And today's top tech companies like Google is pretty much involved in every sector. To call companies like Google to be just 'tech' is quite misleading. Google is found in almost every sector including energy, real estate, etc.
You guys really should check out companies like Samsung in Korea. You can buy your apartment, car, computer, insurance, pension, food all from Samsung while being employed at Samsung and walking around a park partly funded by Samsung and spending money through Samsung pay (personally not a fan of Samsung's stock future).
How do you categorize these companies that have been learning more and more from past history (e.g.: GE, Yahoo, etc.) and able to take advantage of its 'ecosystem'.
Covid really has changed the way professionals view these tech giants (look at the valuation jump).
Sorry for the rambling. Just wanted to put the info out for those who actively avoid US Stock Market index, etc. due to 'too concentrated in 1 sector' or 'valuations are too high' or is thinking of investing partly in single stocks.

There's really no reason to be intimidated about 'what about the Wall Street professionals'.
They are just normal human beings who really don't know much about markets themselves and are only there for the paycheck (just like most people in many fields).
The peers I know working at top hedge funds literally have 0 clue about the stock market (in terms of traditional valuations). Those are your competitors with Ivy League diplomas. All they care about is the pay. That's it.
Last edited by fwellimort on Wed Jun 23, 2021 4:47 pm, edited 6 times in total.
pseudoiterative
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Location: australia

Re: One Stock Portfolio

Post by pseudoiterative »

ZenZero wrote: Tue Jun 22, 2021 8:06 pm Really great investment ideas are hard to come by. So, why not invest only in your the best idea that you understand better than anybody else? The argument against this and for a 10-15 stocks portfolio is the importance of diversification. So, that got me thinking if I have a way to ONLY invest in my best investment idea and still can achieve diversification, then why would I invest in the second best idea?
If you are one of those relatively unusual people who enjoys and seeks out additional exposure to risk (here in casual boglehead forum discussion we mostly think about downside risk but there's also upside risk, the risk that an investment may - alas - pay out much higher than expected), then it might be "optimal" for you personally to bet 100% of your capital allocation on your single best idea with no diversification across other bets - be they hand-picked stocks or market cap weighted buckets of stocks in low cost index funds.

c.f. mean-variance portfolio optimisation, see modern portfolio theory (wikipedia)
pseudoiterative
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Location: australia

Re: One Stock Portfolio

Post by pseudoiterative »

ZenZero wrote: Tue Jun 22, 2021 11:15 pm Right now my eyes are on good old General Motors. I am holding bunch of stock since $20 per share and have studied it for a long time. It's a one-time bankrupt and very hated company. But I think the future is bright. You can see my investment thesis in this video presentation by the company

https://www.youtube.com/watch?v=CLaX3ZSKwaw
Interesting!

I run a fairly dumb automated fundamental analysis to screen tens of thousands of stocks down to a shortlist that warrant closer manual investigation. Here's what jumps out at me about the automated analysis applied to GM at $60:
  1. using net-present-value of discounted future earnings to estimate a rough share price, current market price of $60 per share seems fair value. Market price is maybe 20% undervalued or 20% overvalued depending if revenue has a "great" or "bad" change in future, respectively.
  2. Historically, trend for revenue is bad: it has been declining for years.
  3. Typical return on equity is okay, but not great. Typical return on capital is poor.
  4. Company may be at relatively high risk of bankruptcy: Altman Z-score (rule of thumb for predicting future bankruptcy) is bad. Acid test is poor. Current ratio is bad
GM doesn't end up on my shortlist for things to investigate buying, it gets excluded. In fact it gets excluded for any of the four reasons above, not all of them. I may be making an error excluding GM, my analysis is pretty dumb and if it included a deeper analysis with more information about the specific situation, perhaps I'd reckon GM is underpriced and a good investment.

GM was probably a pretty great buy at $20 though! Good work.

My automated analysis is based on public data from annual & quarterly reports, i.e. it is essentially based on trailing not leading indicators of business performance. Using trailing financial indicators to estimate future business performance is questionable. My dumb analysis has no ability to predict or forecast "turn around" situations, it doesn't understand the auto industry, or the true mechanics of GM's business, or what GM's future plans may be -- especially if GM's business pivots to start operating in a way that is very different to the trailing 5-10 years. I prefer to invest in businesses that seem boring and predictable, but inexplicably undervalued by the market -- finding opportunities to invest in such businesses at cheap prices is rare, but there were many opportunities last year for a few months from mid-march onwards.
langlands
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Re: One Stock Portfolio

Post by langlands »

fwellimort wrote: Wed Jun 23, 2021 4:25 pm ...

There's really no reason to be intimidated about 'what about the Wall Street professionals'.
They are just normal human beings who really don't know much about markets themselves and are only there for the paycheck (just like most people in many fields).
The peers I know working at top hedge funds literally have 0 clue about the stock market (in terms of traditional valuations). Those are your competitors with Ivy League diplomas. All they care about is the pay. That's it.
Hey fwellimort,

I share your taste in stocks (pro-tech generally) and idea about time investment and portfolio performance (that you can beat the market with some effort, although perhaps it isn't worth it). However, I fundamentally disagree with you on why you can outperform the market. To me the best way to beat the market is to identify stocks you have domain expertise in (say tech if you're a SWE) and leverage that expertise into a long term vision on secular trends (aka Buffett's circle of competence). Market professionals and business analysts are highly trained in reading 10Ks, earnings announcements, and all sorts of business metrics, so you are highly unlikely to outperform them on that front. It's much more likely that you might be able to see that the market is underestimating the potential of a technology by 10x that an analyst assigned to the sector just can't see, having never worked in the area and having no particular talent or vision to innovate in that area.

I have seen you express your disdain for Wall Street several times (we had a nice back and forth awhile ago in the GME thread 8-) ) and it seems you think them neither decent nor competent. I'm just curious exactly where it comes from (moreso the latter as the idea that Wall Street professionals have questionable ethics is not an unpopular position). It seems you have friends working in hedge funds and your father also works in financial services, but you hold their financial acumen in low regard. As someone working in the financial industry, I find my colleagues highly knowledgeable. How are your peers at top hedge funds paid if they know nothing about the market? Do they add no value to the firm? Everyone knows it's not easy to get those positions. I mean it's one thing to care only about the pay, and another thing to get paid. A lot of people working jobs (and you see this sentiment expressed quite frequently on this site) only care about the pay and are looking at the first excuse to retire once they hit "their number."
UpperNwGuy
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Re: One Stock Portfolio

Post by UpperNwGuy »

ZenZero wrote: Wed Jun 23, 2021 4:18 pm
Da5id wrote: Wed Jun 23, 2021 4:08 pm You perhaps are overthinking this, or believing that things that matter lots don't. Vanguard Total has very slightly outperformed the S&P 500 since inception, per below, but they track quite closely overall.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
Yes, I agree. Although, I think S&P 500 slightly outperforms total market during recessions and total market slightly outperforms S&P 500 in bull market, particularly towards the end of it.
But that doesn't matter. The average investor will go through several recessions and several bull markets during their investing life, so knowing which fund outperforms the other at which times is useless knowledge.
fwellimort
Posts: 782
Joined: Tue Feb 12, 2019 9:41 am

Re: One Stock Portfolio

Post by fwellimort »

langlands wrote: Wed Jun 23, 2021 6:20 pm Market professionals and business analysts are highly trained in reading 10Ks, earnings announcements, and all sorts of business metrics, so you are highly unlikely to outperform them on that front. It's much more likely that you might be able to see that the market is underestimating the potential of a technology by 10x that an analyst assigned to the sector just can't see, having never worked in the area and having no particular talent or vision to innovate in that area.

I have seen you express your disdain for Wall Street several times (we had a nice back and forth awhile ago in the GME thread 8-) ) and it seems you think them neither decent nor competent. I'm just curious exactly where it comes from (moreso the latter as the idea that Wall Street professionals have questionable ethics is not an unpopular position).
Reading 10Ks, earnings announcements, and all sorts of business metrics, etc. are to me something 'basic'. It's like knowing how to code for software engineers.
It's something to be expected out of professionals. I expect those who are dedicated to all have this basic competency (retail investors who can't even do this should not be doing 1 stock portfolios).

I don't disdain Wall Street. I'm actually quite fascinated by the top trading firms and some of the brightest peers I know work there.
I actually have high respects for those top trading firms cause it's filled with fascinatingly bright minds (though ideally, these bright minds could be used elsewhere).
However, I also do realize those bright peers view stocks as numbers/data based game.
It doesn't seem that those bright peers are motivated to actually learn about the industry itself.
Stock prices while there are most likely patterns (e.g.: human behavior, nature, etc.) should not be so detached from the actual company itself.
And the peers I know are quite disinterested to viewing stocks as ownerships to the actual underlying companies. They are all just there for the money and the additional work does not interest them (you make money to enjoy life outside work).

I also guess my standard in general for competent serious 'retail investor' is quite high.
The work that goes on Wall Street isn't as abstract as working on some sort of algebraic topology.
It's something that can be done by competent retail investors (if they are willing to put in the time). I assume those who are deciding to truly concentrate on single stocks are at least willing to spend the time to accommodate for such serious risks (it's different from me who is just playing around with 'fun money' cause I know I'm set financially regardless).
langlands wrote: Wed Jun 23, 2021 6:20 pm How are your peers at top hedge funds paid if they know nothing about the market? Do they add no value to the firm? Everyone knows it's not easy to get those positions. I mean it's one thing to care only about the pay, and another thing to get paid. A lot of people working jobs (and you see this sentiment expressed quite frequently on this site) only care about the pay and are looking at the first excuse to retire once they hit "their number."
My peers are bright when it comes to mathematical talent. If you are playing short term games in the stock market, then I really wouldn't want to compete against such minds. But rarely are these top trading firms trading for the long term.

Greedy solution is not always the optimal solution. It could be. But it might also not.
Individuals can have different time frames from institutions. I don't have to 'try to beat the market' every day or every quarter. There's nothing stopping me from staying in an index and finding an interesting company (having done the homework beforehand by learning how to valuate, etc.) 12 years down the line and then focusing on that interesting company. I also have no problems if a long term stock I own might underperform for quarters if not years. This is not something institutions can generally tolerate.

'Add no value to the firm'. As a collective, of course they add value. As individuals, who knows. Do every developer at say Google add notable value? I would assume not. Some teams have notable impact while other teams have negligible impact. But the ones making negligible impact might also be necessary for these institution to sustain itself long term.

Work can be interesting (the peers I know work at the top trading firms due to pay + the environment of being surrounded by very talented people) but I don't believe most are willing to sell their souls outside work to maximize efficiency.
That's asking too much of almost anyone (especially if they aren't owners).

I also did note from asking my father and all that many institutions that long tend to be quite closet indexes.
When dealing with billions of dollars, there's just too much at stake to take extreme bets. This is something individuals can do in which most institutions won't partake in; not many people are fine with risking losing all their life savings at once in a poor bet. Imagine for instance investing in a fund that places all your money in 1~2 stocks.

Basically, the biggest advantages individual investors have are: time frame + risk tolerance.
Individuals can have very long time frames (and might not have to be active for decades if there's no interesting investments) + be willing to place bets that can have outsized returns [for outsized risks].

Which reminds me, one of my peers back a few years ago literally did an all in on Amazon and AMD. I am quite confident he would never do that with institutional money. I don't know if he's a genius or just insanely lucky. Quite something. But it evidences that even those working in the field would never do something so reckless with other people's money.

Plus, I have no interest about my work outside my job. I wouldn't expect more out of others. In fact, I have absolutely no idea what my company actually does (outside my work). Sure I have a general gist of knowledge of the overall company work but that's really it. I'm not interested in fully understanding stuffs that are going in some of the other teams at the company. That said, I do enjoy working at my job (due to good teammates).
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

pseudoiterative wrote: Wed Jun 23, 2021 5:13 pm Interesting!

I run a fairly dumb automated fundamental analysis to screen tens of thousands of stocks down to a shortlist that warrant closer manual investigation. Here's what jumps out at me about the automated analysis applied to GM at $60:
  1. using net-present-value of discounted future earnings to estimate a rough share price, current market price of $60 per share seems fair value. Market price is maybe 20% undervalued or 20% overvalued depending if revenue has a "great" or "bad" change in future, respectively.
  2. Historically, trend for revenue is bad: it has been declining for years.
  3. Typical return on equity is okay, but not great. Typical return on capital is poor.
  4. Company may be at relatively high risk of bankruptcy: Altman Z-score (rule of thumb for predicting future bankruptcy) is bad. Acid test is poor. Current ratio is bad
GM doesn't end up on my shortlist for things to investigate buying, it gets excluded. In fact it gets excluded for any of the four reasons above, not all of them. I may be making an error excluding GM, my analysis is pretty dumb and if it included a deeper analysis with more information about the specific situation, perhaps I'd reckon GM is underpriced and a good investment.

GM was probably a pretty great buy at $20 though! Good work.

My automated analysis is based on public data from annual & quarterly reports, i.e. it is essentially based on trailing not leading indicators of business performance. Using trailing financial indicators to estimate future business performance is questionable. My dumb analysis has no ability to predict or forecast "turn around" situations, it doesn't understand the auto industry, or the true mechanics of GM's business, or what GM's future plans may be -- especially if GM's business pivots to start operating in a way that is very different to the trailing 5-10 years. I prefer to invest in businesses that seem boring and predictable, but inexplicably undervalued by the market -- finding opportunities to invest in such businesses at cheap prices is rare, but there were many opportunities last year for a few months from mid-march onwards.
Thank you for providing your analysis of GM. I am always willing to listen to the opposing view. Most important thing that will decide the future of GM is whether the company can pivot to the new business of selling electric and autonomous/semi-autonomous vehicles. They are betting $35 billion on it. If the bet becomes successful, then the company will be significantly rerated by the market. If the bet fails, then that will be the end of GM. I like their chances, but will monitor the progress continuously. If I see any signs of trouble in next 1-2 years, I will be out with a click of the mouse. Meanwhile, we can enjoy the video of construction of their new battery plant in Lordstown, Ohio.

https://www.youtube.com/watch?v=vbgzuy6usaE

And the preproduction of Cruise Origin fully autonomous vehicle (without steering wheel)

https://www.youtube.com/watch?v=NgrSQLfTVvA

Also, Microsoft, Honda, SoftBank, and Walmart have invested billions of dollars in GM's Cruise subsidiary this year. They will also lose billions if GM and its Cruise subsidiary goes down.
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

fwellimort wrote: Wed Jun 23, 2021 4:25 pm The peers I know working at top hedge funds literally have 0 clue about the stock market (in terms of traditional valuations). Those are your competitors with Ivy League diplomas. All they care about is the pay. That's it.
Excellent write up, fwellimort! Thank you for giving us inside insights on so called wall street professionals!
BrooklynInvest
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Re: One Stock Portfolio

Post by BrooklynInvest »

To fully know ONE stock at least as well as the worst industry analyst in the active management business don't you need to continually evaluate all stocks in the stock's sector? How else would you know whether the myriad of data point changes your company goes through each day are good/bad/irrelevant?

The people that do this for a living are incredibly smart and eat, breath and sleep their companies... and yet active funds still underperform with some frequency. Not something I'd consider but each to their own.

Good luck OP!
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

BrooklynInvest wrote: Thu Jun 24, 2021 9:05 am To fully know ONE stock at least as well as the worst industry analyst in the active management business don't you need to continually evaluate all stocks in the stock's sector? How else would you know whether the myriad of data point changes your company goes through each day are good/bad/irrelevant?

The people that do this for a living are incredibly smart and eat, breath and sleep their companies... and yet active funds still underperform with some frequency. Not something I'd consider but each to their own.

Good luck OP!
Yes, I agree with you. The best thing to do is to go with 100% indexing. But if you at all believe that you can beat the market, then do it with your play money and limit yourself to only one stock at a time because as you correctly mentioned, one needs to continually evaluate all stocks in the stock's sector. There is no way you can own 10-15 different stocks in various sectors and do all that serious analysis in your spare time. In my opinion, there are different stages of reaching the ultimate nirvana, and you can't go to the next stage before you completely master the previous stage. These stages are as follows:
  • Stage 1: Learn to live below your means and save money. Build your emergency fund.
  • Stage 2: Learn about different investment products, try to invest in safer instruments such as bonds and see how you psychologically deal with the minor volatility of the bond market. If you can't deal with bond fund volatility, then you are stupid to go in stocks.
  • Stage 3: Invest in S&P 500, learn to deal with all the volatility of the stock market. And be a lifelong student of businesses, study companies, read annual reports, etc.
  • Stage 4: Now you are ready for one stock portfolio with intense focus along with the index investing
But what I see around is young kids going straight to Stage 4 and beyond with multiple not so well-studied stocks in their portfolios on Robinhood. That is pure gambling!
muffins14
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Re: One Stock Portfolio

Post by muffins14 »

ZenZero wrote: Wed Jun 23, 2021 4:02 pm
muffins14 wrote: Wed Jun 23, 2021 3:40 pm This seems like a waste of time. Here are 3 better things to do that likely have the same if not better expected portfolio value

1) invest all in VT and invest your free time from not extensively study stocks into volunteer work
2) invest all in VT and invest your free time from not extensively study stocks into getting better at your job + getting promotions
3) choose 1 stock at random from the S&P 500 and then invest all the rest in VT and invest your free time from not extensively study stocks into a fun new hobby
Glad that you brought VT into the discussion. I have observed people prefer VT and/or VTI over S&P 500 index because they argue every time a company gets added or subtracted from it, there are frictional costs due to security supply and demand issues and related arbitrage opportunities enjoyed by computing algorithms, etc. But then what about highly overpriced SPACs, IPOs, etc. that get added to the total market? Don't they cause frictional costs to VT and VTI? As least S&P 500 doesn't get all that crap.
I think you kind of ignored my point here. My point isn't that one fund is better than other due to arbitrage, algorithms, frictions, IPOs etc.

My point is that investing your time in the one-stock-to-rule-them all, and even investing your time in writing this thread, is likely a waste of your time relative to just investing in one fund/ETF and moving on to other things that bring you joy or compensation
Da5id
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Re: One Stock Portfolio

Post by Da5id »

ZenZero wrote: Thu Jun 24, 2021 9:58 am But what I see around is young kids going straight to Stage 4 and beyond with multiple not so well-studied stocks in their portfolios on Robinhood. That is pure gambling!
Probably roughly equally likely to succeed as your one stock you think you totally uniquely understand plan. As is a monkey throwing darts at a page of stock quotes (as if such were printed any more).

Given your "there are different stages of reaching the ultimate nirvana" comment, not sure how serious you are about any of this though.
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1789
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Re: One Stock Portfolio

Post by 1789 »

I missed it - what is your current one portfolio stock now? I see you mentioned GM but you know that right, that industry is a dead horse as the Oracle keeps saying.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

Da5id wrote: Thu Jun 24, 2021 3:42 pm
ZenZero wrote: Thu Jun 24, 2021 9:58 am But what I see around is young kids going straight to Stage 4 and beyond with multiple not so well-studied stocks in their portfolios on Robinhood. That is pure gambling!
Probably roughly equally likely to succeed as your one stock you think you totally uniquely understand plan. As is a monkey throwing darts at a page of stock quotes (as if such were printed any more).

Given your "there are different stages of reaching the ultimate nirvana" comment, not sure how serious you are about any of this though.
In my previous post, I have shown with hardcore mathematical analysis that with my "one stock (5%) + index (95%)" portfolio, if I am right on my one stock, I will massively outperform your index portfolio. And if I am completely wrong on my stock to the point that it will go to zero (highly unlikely), then your index portfolio will be only slightly ahead of my portfolio. Let's put all subjective arguments aside. Please try to poke holes in my mathematical analysis, so that I can clearly see the downside of my argument. I will appreciate that. :happy
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ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

1789 wrote: Thu Jun 24, 2021 3:51 pm I missed it - what is your current one portfolio stock now? I see you mentioned GM but you know that right, that industry is a dead horse as the Oracle keeps saying.
If by Oracle, you mean Mr. Buffett, then you would be happy to know that currently GM is the 10th biggest position in his portfolio.

https://www.dataroma.com/m/holdings.php?m=BRK

And I already mentioned that my returns on GM are 200% so far.
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ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

muffins14 wrote: Thu Jun 24, 2021 3:37 pm I think you kind of ignored my point here. My point isn't that one fund is better than other due to arbitrage, algorithms, frictions, IPOs etc.

My point is that investing your time in the one-stock-to-rule-them all, and even investing your time in writing this thread, is likely a waste of your time relative to just investing in one fund/ETF and moving on to other things that bring you joy or compensation
You and me are not far away from each other in our views. You are proposing one fund/ETF (100%), and I am proposing "one fund/ETF (95%) + one stock (5%)", and my mathematical analysis in my previous post shows that if I am right on the stock, then I will massively outperform the index, and if I am completely wrong, then index will only be slightly ahead of me. There is only one life I have, so I would like to take that chance and learn along the way.

You mentioned focusing on things that bring you joy. Well, studying businesses is the activity that brings me tremendous joy :happy
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1789
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Re: One Stock Portfolio

Post by 1789 »

ZenZero wrote: Thu Jun 24, 2021 3:57 pm
1789 wrote: Thu Jun 24, 2021 3:51 pm I missed it - what is your current one portfolio stock now? I see you mentioned GM but you know that right, that industry is a dead horse as the Oracle keeps saying.
If by Oracle, you mean Mr. Buffett, then you would be happy to know that currently GM is the 10th biggest position in his portfolio.

https://www.dataroma.com/m/holdings.php?m=BRK

And I already mentioned that my returns on GM are 200% so far.
Good to hear. Does that mean you wont change it. When will you swap this to another stock?
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

1789 wrote: Thu Jun 24, 2021 4:09 pm Good to hear. Does that mean you wont change it. When will you swap this to another stock?
Hopefully, the company will never give me a reason to swap. But I am in no love with GM either. I periodically monitor the progress of their electric and autonomous vehicles programs. If I see trouble with that or if I come across another idea that I think is far better than the current idea, then I will swap. But I am allowed to only one stock at any time. Either you swap completely or you don't. That's the kind of conviction I will need in another idea.

For now, I trust GM CEO Mary Barra's work, and I keep my faith in the company. But I keep looking for more superior ideas!
Last edited by ZenZero on Thu Jun 24, 2021 4:26 pm, edited 1 time in total.
mutedbytes
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Re: One Stock Portfolio

Post by mutedbytes »

ZenZero wrote: Thu Jun 24, 2021 4:06 pm
muffins14 wrote: Thu Jun 24, 2021 3:37 pm I think you kind of ignored my point here. My point isn't that one fund is better than other due to arbitrage, algorithms, frictions, IPOs etc.

My point is that investing your time in the one-stock-to-rule-them all, and even investing your time in writing this thread, is likely a waste of your time relative to just investing in one fund/ETF and moving on to other things that bring you joy or compensation
You and me are not far away from each other in our views. You are proposing one fund/ETF (100%), and I am proposing "one fund/ETF (95%) + one stock (5%)", and my mathematical analysis in my previous post shows that if I am right on the stock, then I will massively outperform the index, and if I am completely wrong, then index will only be slightly ahead of me. There is only one life I have, so I would like to take that chance and learn along the way.

You mentioned focusing on things that bring you joy. Well, studying businesses is the activity that brings me tremendous joy :happy
I think others have tried to point this out, and I can't help but feel you are sidestepping their meaning: but your idea of putting all your time and energy into a single company, how does this affect the outcome of that one choice? Either 1) you have to put all your time and energy into the market or industry as a whole in order to identify the "right choice" of this single company in the first place in order to establish your initial position, or 2) you mean to put all your time and energy into actively trading and making moves on a single stock frequently in the hopes of turning a large profit. Perhaps I missed your intent, but which is it and how does "focusing on a single stock" affect the expected outcome here in either case?
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Re: One Stock Portfolio

Post by ZenZero »

mutedbytes wrote: Thu Jun 24, 2021 4:25 pm I think others have tried to point this out, and I can't help but feel you are sidestepping their meaning: but your idea of putting all your time and energy into a single company, how does this affect the outcome of that one choice? Either 1) you have to put all your time and energy into the market or industry as a whole in order to identify the "right choice" of this single company in the first place in order to establish your initial position, or 2) you mean to put all your time and energy into actively trading and making moves on a single stock frequently in the hopes of turning a large profit. Perhaps I missed your intent, but which is it and how does "focusing on a single stock" affect the expected outcome here in either case?
Let's put hardcore math in the front. Here is what I posted previously:
  • The first portfolio is pure S&P 500 index and let's say it is going to give you average 10% annual return. If you invest $100 in it, that invest will become $984.97 in 25 years
  • The second portfolio is $95 (95%) S&P 500 index and $5 (5%) single stock best idea. Now imagine the worst case scenario...your best idea goes to zero and index gives annual 10%. Then your final amount after 25 years will be $935.72.
  • Now imagine the best case scenario....your best idea gives you 20% return annually and index gives you 10%. In 25 years, your final amount will be $1,333.20. And your initially 5% best idea will eventually become 29.81% of your portfolio. Not a chump change!
Now please poke holes in this analysis. Few rules I will clarify:
  • I am never ever allowed to touch my index money.
  • I am not looking for trading. I am only interested in long term ideas. I am allowed to swap, but I can only be invested in one idea at any given time.
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Re: One Stock Portfolio

Post by mutedbytes »

ZenZero wrote: Thu Jun 24, 2021 4:32 pm
mutedbytes wrote: Thu Jun 24, 2021 4:25 pm I think others have tried to point this out, and I can't help but feel you are sidestepping their meaning: but your idea of putting all your time and energy into a single company, how does this affect the outcome of that one choice? Either 1) you have to put all your time and energy into the market or industry as a whole in order to identify the "right choice" of this single company in the first place in order to establish your initial position, or 2) you mean to put all your time and energy into actively trading and making moves on a single stock frequently in the hopes of turning a large profit. Perhaps I missed your intent, but which is it and how does "focusing on a single stock" affect the expected outcome here in either case?
Let's put hardcore math in the front. Here is what I posted previously:
  • The first portfolio is pure S&P 500 index and let's say it is going to give you average 10% annual return. If you invest $100 in it, that invest will become $984.97 in 25 years
  • The second portfolio is $95 (95%) S&P 500 index and $5 (5%) single stock best idea. Now imagine the worst case scenario...your best idea goes to zero and index gives annual 10%. Then your final amount after 25 years will be $935.72.
  • Now imagine the best case scenario....your best idea gives you 20% return annually and index gives you 10%. In 25 years, your final amount will be $1,333.20. And your initially 5% best idea will eventually become 29.81% of your portfolio. Not a chump change!
Now please poke holes in this analysis. Few rules I will clarify:
  • I am never ever allowed to touch my index money.
  • I am not looking for trading. I am only interested in long term ideas. I am allowed to swap, but I can only be invested in one idea at any given time.
I think you still have not answered the question. You say you don't have to study the market or multiple stocks/industries. Is your plan to focus on one company and frequently and actively trade that one company? Or is your plan indeed to have to somehow study the whole market and identify and pick the one company. Because you say you don't want to trade, but if you are just identifying and holding one stock, how did you pick it and how does any amount of time or energy affect the outcome of that single choice?
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Re: One Stock Portfolio

Post by ZenZero »

mutedbytes wrote: Thu Jun 24, 2021 4:41 pm I think you still have not answered the question. You say you don't have to study the market or multiple stocks/industries. Is your plan to focus on one company and frequently and actively trade that one company? Or is your plan indeed to have to study the whole market and identify and pick the one company.
I never said I don't have to study the market or multiple stocks/industries. In fact, I need to keep studying all types of industries and companies to continue to expand my circle of competence. I will continue to explore new ideas. But only time I can act is when I have 100% conviction in the new idea over existing idea. And I will have to prove that by putting all the eggs in that one basket. No active trading either. In fact, I am thinking of adding more stringent rules like I won't be able to get out of that idea for at least two years. The more stringent the requirements are, the deeper I will be forced to think about my idea.
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Re: One Stock Portfolio

Post by Da5id »

ZenZero wrote: Thu Jun 24, 2021 4:32 pm Let's put hardcore math in the front. Here is what I posted previously:
  • The first portfolio is pure S&P 500 index and let's say it is going to give you average 10% annual return. If you invest $100 in it, that invest will become $984.97 in 25 years
  • The second portfolio is $95 (95%) S&P 500 index and $5 (5%) single stock best idea. Now imagine the worst case scenario...your best idea goes to zero and index gives annual 10%. Then your final amount after 25 years will be $935.72.
  • Now imagine the best case scenario....your best idea gives you 20% return annually and index gives you 10%. In 25 years, your final amount will be $1,333.20. And your initially 5% best idea will eventually become 29.81% of your portfolio. Not a chump change!
Now please poke holes in this analysis.
Sure, hardcore math. "Imagine the best case scenario" is doing lots of work here. If you simply could find a stock whose performance doubles the stock market annually for 25 years you'd totally ahead. Yep. More likely you will just pick a stock that does roughly average, though with high variance. And won't move the needle, despite your extensive research and stunningly unique insights into the stock.
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Re: One Stock Portfolio

Post by ZenZero »

Da5id wrote: Thu Jun 24, 2021 5:02 pm
Sure, hardcore math. "Imagine the best case scenario" is doing lots of work here. If you simply could find a stock whose performance doubles the stock market annually for 25 years you'd totally ahead. Yep. More likely you will just pick a stock that does roughly average, though with high variance. And won't move the needle, despite your extensive research and stunningly unique insights into the stock.
No, I didn't say I will find a stock whose performance doubles the stock market annually for 25 years. All I did is put two extreme possibilities in front of you. But by doing this thought experiment, I proved that there is very less downside and very high upside (however less the probability of such outcome is) to this portfolio construction that I am recommending.

I am not afraid of volatility. And I enjoy this hard work. Let's say the actual outcome of this portfolio will be average as you mentioned, then also I will come head. I will have learned a lot about businesses, markets, human psychology, new technologies, etc., etc. My knowledge will have compounded many fold as opposed to just sitting 100% in index and spend my life without any intellectual pursuits. I have already learned a lot by being a student of businesses and following great value investors that have not only helped me in investing, but also in my personal life.
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Re: One Stock Portfolio

Post by Da5id »

ZenZero wrote: Thu Jun 24, 2021 5:28 pm I am not afraid of volatility. And I enjoy this hard work. Let's say the actual outcome of this portfolio will be average as you mentioned, then also I will come head. I will have learned a lot about businesses, markets, human psychology, new technologies, etc., etc. My knowledge will have compounded many fold as opposed to just sitting 100% in index and spend my life without any intellectual pursuits. I have already learned a lot by being a student of businesses and following great value investors that have not only helped me in investing, but also in my personal life.
Look, if you think this will be fun, go ahead. It is your money. You seemed to be arguing that it is likely to give better than market returns. I don't believe it. And IMO an excessive focus on the market and companies is more likely to lead to tinkering and behavioral errors. But if you will be happy with whatever comes and will enjoy the journey, of course go to it.

As to the part I bolded, well, it is quite possible to have other pursuits than investing. I enjoy a number of types of dancing and complicated board games, much more enjoyable to me than attempting to beat the market. But I get that other people have other interests, that is fine.
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Re: One Stock Portfolio

Post by anonsdca »

Well, I don't agree with much in this thread---but that is par for the course, because I am not an indexer nor would I hold only one individual stock so I dont fit on either side of this debate.

However, to the OP, I think you are kidding yourself that you will be able gain some sort of advantage by "watch like a hawk" one particular stock. Investing in individual companies can be just as passive as investing in an index, and in fact, when you have enough companies in your portfolio you essentially have an index, it was just hand picked rather than modeled after something else. I think you are looking to "get rich" with a pick, hit a homer, etc. That is OK. Been there done that. I am still slogging along because time in the market is really the way to build wealth or at least a portfolio that pays your expenses.

I like investing, I like research, I like the whole ball of wax, but I dont fool myself that I am running these companies and that I have some greater insight than others, particularly those that are in fact in charge of running the company. These companies have Boards, CEOs, entire C-suites, attorneys, managers, supervisors, sales teams, etc. etc.

And there are selective companies who's management have demonstrated their skill, knowledge and success over a very long time. There are some key metrics we can all look to in their financials, but other than that, you can simply build a portfolio of those and call it a day. Sit back and relax and let them do what they get paid for. The idea of holding just one individual stock would have me feeling nervous all the time and forget that.

Again, I am not an indexer, I dont plan on some grand withdrawal plan, I dont care if I beat the "market" or index, my strategy is just different, but every bit as passive as indexing.

Also, there are plenty of "best ideas" out there. The worlds economy has many sectors and many moving parts. To say, "I am just going to pick one" is not allowing yourself potential success in other industries. Who is the leading edge retailer, manufacturer, biotech, tech, Pharma, healthcare provider, etc., etc., etc.

So I am off track abit, but I get it. You are an indexer, looking for an edge. You feel like if you hit a home run, you will benefit greatly, and if you fail, it won't hurt so bad. Its is personal finance, meaning it is your personal world. You are free to invest in anyway you like.

I am not even a Boglehead but I read here daily. You dont have to subscribe to a particular theory to participate here, you just need to deal with the negativity of those that think your doing it wrong.
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Re: One Stock Portfolio

Post by GibsonL6s »

ZenZero wrote: Tue Jun 22, 2021 11:35 pm
mikejuss wrote: Tue Jun 22, 2021 11:27 pm
Time will tell. Good luck. And don't spend more money on it than you're willing to lose.
It was a small position when I bought it for $20 a share (with $100,000 investment) when the entire world was closing last year. Now it has become a big position with close to $300,000 value. I haven't sold a single share and not in any hurry. My approach towards the company management is, "Trust but verify".
How about selling an amount equal to the return you would have received in the index plus the taxes and putting that back into the index. Now take the remainder and fund your next idea. This way your next idea is funded with profits. IF your ideas stop beating the index you have your answer.

As I always say the way to get rich is to concentrate, it is also the way to get poor.

About the idea you need you need to have superior knowledge to beat the index, I disagree, you just need to concentrate and be right. I know tons of regular people who concentrated in Apple, Tesla, Microsoft etc, who made lots of money. They were just willing to back their ideas. Most Bogleheads are just not willing to "risk" it. I am solidly in the Boglehead camp but many are not.

Good luck!
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Re: One Stock Portfolio

Post by Da5id »

anonsdca wrote: Thu Jun 24, 2021 5:47 pm I am not even a Boglehead but I read here daily. You dont have to subscribe to a particular theory to participate here, you just need to deal with the negativity of those that think your doing it wrong.
There certainly is a fair bit of groupthink here, and I'm mostly with the group :p

But I don't know that most bogleheads participants are all that down on people buying some individual stocks if that floats their boat (though obviously the index investing vibe is strong here). I think more of the pushback comes towards people who proclaim that they will consistently beat the market by stock selection, as that generally has proven difficult.
Last edited by Da5id on Thu Jun 24, 2021 6:30 pm, edited 1 time in total.
sjl333
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Re: One Stock Portfolio

Post by sjl333 »

ZenZero wrote: Tue Jun 22, 2021 8:06 pm Hi Friends,

This is my first post. I just created account on the Bogleheads forum to ask this question which is on my mind for a long time now. I am a huge fan of Jack Bogle and Warren Buffett. So, here are my thoughts/question on One Stock Portfolio:

Over the years, I tried less successfully (in comparison to S&P 500) to pick and invest in individual stocks. Then I realized that it is very difficult to truly understand and continuously monitor each company even in a portfolio of 10-15 stocks. Really great investment ideas are hard to come by. So, why not invest only in your the best idea that you understand better than anybody else? The argument against this and for a 10-15 stocks portfolio is the importance of diversification. So, that got me thinking if I have a way to ONLY invest in my best investment idea and still can achieve diversification, then why would I invest in the second best idea? The answer was simple...buy your best idea in the same proportion as you would in your typical diversified portfolio and put rest of the money in S&P 500 index fund. That way you can think like investor (S&P 500 index fund) and like a virtual entrepreneur by studying/monitoring your best idea like a hawk! You can continue to study other ideas and when a better idea that what your currently own comes along, you can switch your stock. But you are only allowed to invest in one stock at a time and the rest of the money will be in index fund. That way you will bring a tremendous focus to the game. It is a slightly different version of Warren Buffet's idea that the best way to invest is to think of a lifetime investment card. Every time you make an investment your card is marked. Once you have made 20 investments, that's it, you can't make anymore. What I am saying is you are allowed to punch only one hole at any given time.

Long story short, why not have a one stock portfolio for concentration and S&P 500 for diversification at the same time...best of both the worlds. Staying away from your second and third best ideas. Imagine if you knew in advance with 100% certainty that Amazon is your best idea, why would you invest in your second best idea such as "Walmart", etc. The problem is you don't know that in advance, so you diversify, but what's the best way than index to take care of diversification? What do you think? What are the cons in my naive thinking?

All in on Tesla . It's winner takes all in This new day and age.
protagonist
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Re: One Stock Portfolio

Post by protagonist »

ZenZero wrote: Tue Jun 22, 2021 9:08 pm
Notsobad wrote: Tue Jun 22, 2021 8:56 pm I am not interested in placing more than 5% of my invested capital into one company. And even it is MY best idea, I know very little compared to the professional investors. I don’t want to spend the time or do i have the expertise to know if my one stock is still a sound investment, and at only 5%, how much time should I spend on it?

So I don’t and diversify.
Okay, so why not invest 5% in your best idea and diversify 95% in S&P 500 index? What's the reasoning behind investing in the second and third best ideas?
Not having read any responses below this one, forgive me for probably being redundant, but there is no reasoning behind investing in #2 or #3,
And as Notsobad very eloquently stated, professional investors know more than him (and me, and, let's face it....probably everybody who frequents this forum....the large institutions hire the best and brightest every year from MIT, Stanford, etc. who spend most their waking hours honing their craft on some of the most powerful computers on the planet, because their careers depend upon it.) And every trade has a winner and a loser. So those of us who think we are smart enough to win are , in essence, playing chess against Bobby Fischer. Wall Street Bobby probably has a better sense of where Amazon or Walmart stock might go than I certainly do.
And as Notso also stated, is it really worth my while to spend hours and hours researching whether I should buy or sell 5% of my portfolio? It was to me when I started in the early 90s. I thought I was smarter than those pros out there and I had a fool-proof system. Ah, the conceit of youth. I didn't beat the market.
So I switched to indexing and never looked back. Could I have made more money with other strategies? Beats me. But I sure wound up with a lot more time on my hands. And time is the one investment that , once lost, never bounces back.
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Re: One Stock Portfolio

Post by fwellimort »

protagonist wrote: Thu Jun 24, 2021 6:41 pmthe large institutions hire the best and brightest every year from MIT, Stanford, etc. who spend most their waking hours honing their craft on some of the most powerful computers on the planet, because their careers depend upon it.) And every trade has a winner and a loser. So those of us who think we are smart enough to win are , in essence, playing chess against Bobby Fischer.
And what if some of the people here are from those top schools and had no struggle competing against these 'top minds' (if anything, I didn't see anything special among my Columbia peers and my friends at Stanford [a few of them who did (or still doing) grad school]).
I thought vast majority of graduate students (who I competed with) were far inferior academically (at least that's what the test scores proved). Some of those graduates are probably professors right now in their own respective fields.

There's really nothing special with most top students in these schools. They are just everyday people.
I have yet to see the next Mozart in my life. People like Terrance Tao are very rare and the stock market caters to more than just 1 or 2 genius like talents.

I too accept that beating the market long term is a not-worth-the-time endeavor for retail investors but at same time, let's not put people working at Wall Street in some pedestal.
No one really knows the future. Maybe OP has some insight that we don't.
Clearly, I should have paid better attention in my life when I saw all those Amazon shipping boxes in college. I kept telling my dad every week 'Amazon is taking over', 'it's the future' back then.
Should have just put my money where my mouth was.
Maybe I'm a fool to this day by not all inning on Amazon (it is struggling very hard recently to retain talent due to PIP/URA culture but maybe management will fix this issue over time).

My dad has been working in this field all his life. And even he readily admits that no one knows the future but if he can redo his career, he would pay a lot of attention to what his kids used daily (e.g.: me). He saw me using Google when Wall Street was still looking at Yahoo. He saw me love Panera. He evidenced my mother love Starbucks. He evidenced Facebook used more. Also, Apple, Amazon, etc.
While it is true that a very small portion of stocks bring majority of returns in the US Market, the vast majority of those stocks are the mega companies people use (and it has to be because stock market indexes are weighed by market cap).
No one knows the future. Maybe Nifty Fifty situation will occur again (even that argument is questionable because if you held on to those very companies today (e.g.: Disney, Walmart, etc.), you would have ended up doing very very very well despite the vast majority of those companies going bankrupt over time]).
Last edited by fwellimort on Thu Jun 24, 2021 7:09 pm, edited 8 times in total.
mutedbytes
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Re: One Stock Portfolio

Post by mutedbytes »

fwellimort wrote: Thu Jun 24, 2021 6:51 pm And what if some of the people here are from those top schools and had no struggle competing against these 'top minds' (if anything, I didn't see anything special among my Columbia peers and my friends at Stanford [a few of them who did (or still doing) grad school]).

There's really nothing special with most top students in these schools. They are just everyday people.
I have yet to see the next Mozart in my life. People like Terrance Tao are very rare and the stock market caters to more than just 1 or 2 genius like talent.
My suspicion is that mediocrity with billions and resources can easily harm excellence with thousands if we are talking about two sides of a movement or "bet". It just does not seem the typical individual can be playing the same game at the lower level.
Last edited by mutedbytes on Thu Jun 24, 2021 7:02 pm, edited 1 time in total.
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

protagonist wrote: Thu Jun 24, 2021 6:41 pm And as Notsobad very eloquently stated, professional investors know more than him (and me, and, let's face it....probably everybody who frequents this forum....the large institutions hire the best and brightest every year from MIT, Stanford, etc. who spend most their waking hours honing their craft on some of the most powerful computers on the planet, because their careers depend upon it.) And every trade has a winner and a loser. So those of us who think we are smart enough to win are , in essence, playing chess against Bobby Fischer. Wall Street Bobby probably has a better sense of where Amazon or Walmart stock might go than I certainly do.
If that is true, how come "Long-Term Capital Management L.P. (LTCM)" hedge fund which was run by people from MIT and Harvard who had Nobel Prize in Economics failed miserably? How come Lehman Brothers went bankrupt? I can tell you that I am definitely going to perform better than those two companies with my "Index + 1" strategy.

The experts who you are referring to have no doubt tremendous edge over common man over the short term. They are all playing short term game to get their outsized bonuses for the year. So, a long term oriented individual investor who is willing to do the hard work and is not an emotional fool has tremendous edge over the Wall Street.

Indexers say picking individual stocks is fool's errand. Hardcore stock pickers say diversification is the insurance against ignorance! As Charlie Munger says, “the human mind is a lot like the human egg: once one sperm has entered then all the other sperm are locked out". And that's why I am going to keep my mind open and learn from both the camps.
Last edited by ZenZero on Thu Jun 24, 2021 7:24 pm, edited 1 time in total.
protagonist
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Re: One Stock Portfolio

Post by protagonist »

fwellimort wrote: Thu Jun 24, 2021 6:57 pm
And what if some of the people here are from those top schools and had no struggle competing against these 'top minds' (if anything, I didn't see anything special among my Columbia peers and my friends at Stanford [a few of them who did (or still doing) grad school]).
I thought vast majority of graduate students (who I competed with) were far inferior academically (at least that's what the test scores proved). Some of those graduates are probably professors right now in their own respective fields.

There's really nothing special with most top students in these schools. They are just everyday people.
I have yet to see the next Mozart in my life. People like Terrance Tao are very rare and the stock market caters to more than just 1 or 2 genius like talents.uote]
Fair enough, but are you willing to invest millions into, say, Goldman-Sachs' technology and spend nearly all your waking hours researching these stocks, knowing that your career depends on your quarterly performance? And do you have access to Goldman's research staff? Do you have people who have been doing this for decades in similar situations to bounce your ideas off?

Hey, I don't doubt that some people may have "the knack" to beat Wall Street on their own over an extended period of time. Maybe you are one of them. You seem determined to try, so I can only wish you good luck and hope you succeed. I didn't. And even if I did, at my age I realize that my time that I saved when I switched to indexing is worth way more than the extra money I might have made if I beat the market.

As for LTCM and others, my guess is that they failed due to a combination of excessive greed, and the fact that they were getting paid by their investors regardless of how the investors' portfolios did. And because LTCM is not Goldman or Lehman's....We all know why Lehman Bros. et al failed in 2008. Excessive greed, corruption and very risky investments. Walmart and Amazon are not collateral debt obligations squared....those folks at Lehman prob. knew what they were doing when buying or selling Walmart (at least if one assumes that Wall Street is not random, and I have no idea to what extent it is or isn't, there would be a way better than 50-50 chance that they were better at it than me or most of the rest of us). They did extremely well until, blinded by greed, they didn't. If one of them was selling me Amazon, Walmart or whatever, I'd say that , on the buying end, I would have been the one more likely to lose.
Last edited by protagonist on Thu Jun 24, 2021 7:26 pm, edited 1 time in total.
fwellimort
Posts: 782
Joined: Tue Feb 12, 2019 9:41 am

Re: One Stock Portfolio

Post by fwellimort »

protagonist wrote: Thu Jun 24, 2021 7:14 pm Fair enough, but are you willing to invest millions into, say, Goldman-Sachs' technology and spend nearly all your waking hours researching these stocks, knowing that your career depends on your quarterly performance? And do you have access to Goldman's research staff? Do you have people who have been doing this for decades in similar situations to bounce your ideas off?
That's the thing. I as individual don't have to compete vs institutions. I could care less my quarterly or yearly performance.

If quarterly performances were critical, then I would have sold AMD immediately back a few years ago. Especially before the immediate 30% tank in share price.
Time frame and risk tolerance for individuals are very different from institutions.

Today, my AMD returns absolutely crush my index returns in terms of raw %. But at same time, I would never concentrate on AMD if I were working at a large institution cause volatile stocks could mean huge underperformance quarter by quarter.

For instance, I recently purchased some shares of BABA.
Many institutions have dropped due to short term political issues and worries of delisting (and whether chinese govt would allow foreign institutions to benefit from the growth of the company) and cause of potential US govt policies that might prevent holding the shares.
Those risks are something I'm perfectly fine partaking. I don't care if BABA underperforms for another quarter or year as I have my own time frame for investing.
Then there's great companies like Tencent in which its shares trade in OTC. I'm sure many institutions don't hold this company for just this reason alone.
langlands
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Re: One Stock Portfolio

Post by langlands »

fwellimort wrote: Thu Jun 24, 2021 7:24 pm
protagonist wrote: Thu Jun 24, 2021 7:14 pm Fair enough, but are you willing to invest millions into, say, Goldman-Sachs' technology and spend nearly all your waking hours researching these stocks, knowing that your career depends on your quarterly performance? And do you have access to Goldman's research staff? Do you have people who have been doing this for decades in similar situations to bounce your ideas off?
That's the thing. I as individual don't have to compete vs institutions. I could care less my quarterly or yearly performance.

If quarterly performance was critical, then I would have sold AMD immediately back a few years ago. Especially before the immediate 30% tank in share price.
Time frame and risk tolerance for individuals are very different from institutions.

Today, my AMD returns absolutely crush my index returns in terms of raw %. But at same time, I would never concentrate on AMD if I were working at a large institution cause volatile stocks could mean huge underperformance quarter by quarter.

For instance, I recently purchased some shares of BABA.
Many institutions have dropped due to short term political issues and worries of delisting (and whether chinese govt would allow foreign institutions to benefit from the growth of the company) and cause of potential US govt policies that might prevent holding the shares.
Those risks are something I'm perfectly fine partaking. I don't care if BABA underperforms for another quarter or year as I have my own time frame for investing.
Then there's great companies like Tencent in which its shares trade in OTC. I'm sure many institutions don't hold this company for just this reason alone.
Haha, I agree with almost everything in this post. You just like to phrase things in a very hostile way towards Wall Street, which rubs me the wrong way (I work there). The fact of the matter is that almost no one on Wall Street has an investing horizon of 5-10 years or even longer. Fund managers are judged annually, or even quarterly, and any manager who says "trust me, just wait 10 years" would be laughed out of the room. Wall Street is in the business of greasing the wheel of the economy and helping make the markets semi-efficient on the short end of the time scale. Their purpose isn't to foresee the genius of Bezos or Zuckerberg. Because of this, anyone with high risk tolerance and a long investing horizon isn't competing with Wall Street. This is a nuance that is frequently missed when active management is discussed.
Wrench
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Re: One Stock Portfolio

Post by Wrench »

ZenZero wrote: Tue Jun 22, 2021 8:06 pm Hi Friends,

This is my first post. I just created account on the Bogleheads forum to ask this question which is on my mind for a long time now. I am a huge fan of Jack Bogle and Warren Buffett. So, here are my thoughts/question on One Stock Portfolio:

Over the years, I tried less successfully (in comparison to S&P 500) to pick and invest in individual stocks. Then I realized that it is very difficult to truly understand and continuously monitor each company even in a portfolio of 10-15 stocks. Really great investment ideas are hard to come by. So, why not invest only in your the best idea that you understand better than anybody else? The argument against this and for a 10-15 stocks portfolio is the importance of diversification. So, that got me thinking if I have a way to ONLY invest in my best investment idea and still can achieve diversification, then why would I invest in the second best idea? The answer was simple...buy your best idea in the same proportion as you would in your typical diversified portfolio and put rest of the money in S&P 500 index fund. That way you can think like investor (S&P 500 index fund) and like a virtual entrepreneur by studying/monitoring your best idea like a hawk! You can continue to study other ideas and when a better idea that what your currently own comes along, you can switch your stock. But you are only allowed to invest in one stock at a time and the rest of the money will be in index fund. That way you will bring a tremendous focus to the game. It is a slightly different version of Warren Buffet's idea that the best way to invest is to think of a lifetime investment card. Every time you make an investment your card is marked. Once you have made 20 investments, that's it, you can't make anymore. What I am saying is you are allowed to punch only one hole at any given time.

Long story short, why not have a one stock portfolio for concentration and S&P 500 for diversification at the same time...best of both the worlds. Staying away from your second and third best ideas. Imagine if you knew in advance with 100% certainty that Amazon is your best idea, why would you invest in your second best idea such as "Walmart", etc. The problem is you don't know that in advance, so you diversify, but what's the best way than index to take care of diversification? What do you think? What are the cons in my naive thinking?
Because your "best" one stock may turn out to be your worst investment ever. Look at Enron, or GM, or GE, etc. etc. All of these were some people's best stocks at one time, until they weren't. Why do you think you are smarter than everyone else and can pick "one" best stock? Picking just one is a fools errand. But if you think you are that smart, go for it. Maybe you will get lucky.

Wrench
Robot Monster
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Re: One Stock Portfolio

Post by Robot Monster »

Wrench wrote: Thu Jun 24, 2021 7:53 pm Look at Enron, or GM, or GE, etc. etc....

Wrench
ZenZero's stock pick is actually GM. :wink: link
"Picking an AA and sticking with it will get you much better off than any strategy that relies on pontificating on the market." -- our favorite golfer
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

Wrench wrote: Thu Jun 24, 2021 7:53 pm
Because your "best" one stock may turn out to be your worst investment ever. Look at Enron, or GM, or GE, etc. etc. All of these were some people's best stocks at one time, until they weren't. Why do you think you are smarter than everyone else and can pick "one" best stock? Picking just one is a fools errand. But if you think you are that smart, go for it. Maybe you will get lucky.

Wrench
Wrench,

Everybody here fails to understand that I am not picking "one", but I am picking 501 stocks (only difference is I am letting S&P 500 committee choose the remaining 500 stocks for me). But people here have problem with that. They want me to pick more than one stock myself instead of letting S&P 500 committee decide it for me.
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

Robot Monster wrote: Thu Jun 24, 2021 7:59 pm ZenZero's stock pick is actually GM. :wink: link
LOL...I was going to point that out myself...you beat me! :D I think I should take out the "$100K + profit I could have earned on that through index+taxes" out of my gains and put it back in index. That will make all indexers here happy! :happy
averagedude
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Re: One Stock Portfolio

Post by averagedude »

There are stock analyst with Ivy league educations that spend their whole career on large cap stocks in only one industry. 40 hours plus a week, 52 weeks a year, and a 40 year career just analyzing 10 to 25 companies. They have more real time information than I have and they also get to communicate to people who are in the inside of these companies. If I can pick the winner over these guys, I would attribute it to luck, not skill. If I start investing at an early age, have a high savings rate, and invest in a diversified mix of equities with low costs, I won't need any "get rich quick schemes" or a "concentrated one pick wonder" to accomplish my long term goals.
fwellimort
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Re: One Stock Portfolio

Post by fwellimort »

averagedude wrote: Thu Jun 24, 2021 9:11 pm There are stock analyst with Ivy league educations that spend their whole career on large cap stocks in only one industry. 40 hours plus a week, 52 weeks a year, and a 40 year career just analyzing 10 to 25 companies. They have more real time information than I have and they also get to communicate to people who are in the inside of these companies.
And they couldn't pick out Google or Amazon or Facebook or Apple or Microsoft (or Netflix or Dominos or Chipotle or ..).
In fact, pretty much any large company most kids would refer to for the past decade destroyed the market returns.
How is it that the big tech companies in which analysts around the world were so carefully looking at were so mispriced each year.
And every year everyone on the Internet would reply, 'markets are efficiently priced. You think you know more than the market?'.
It was to the point I even asked my father whether these stocks were efficiently priced.
And his response was, "stock prices are just the result of supply and demand. Don't think too much. There's enough buyers that think it's overpriced and enough buyers that think otherwise.".

No one knows the future.
My father tells me, 'knowing the future of the stock price is like having the hands of God'.
I agree. Projecting the future for many industries is not easy even with all the data in the world.
I would go in with the assumption that the large companies (especially in S&P500) are already efficiently priced enough (to the point that most known beliefs are priced in) and buy those companies if you are more optimistic than most people about the company's future. Of course, glimpsing through the balance sheets, products, competitors, and all are helpful but I assume those are trivial acts that I assume any retail investor investing in individual securities should do [and I think it's safe to assume professionals have already punched in these numbers].
OrganizedSlime
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Re: One Stock Portfolio

Post by OrganizedSlime »

I worked for Washington Mutual Bank in Seattle in 2008. Many of us had a lot of the stock. The bank seemed solid, what was there to worry about? We got it as part of our comp package. I remember the day when I woke up and all of that stock was worthless. I only lost thousands. There were others far more sad than I. Good luck with the One Stock Portfolio!
Wrench
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Re: One Stock Portfolio

Post by Wrench »

ZenZero wrote: Thu Jun 24, 2021 8:00 pm
Wrench wrote: Thu Jun 24, 2021 7:53 pm
Because your "best" one stock may turn out to be your worst investment ever. Look at Enron, or GM, or GE, etc. etc. All of these were some people's best stocks at one time, until they weren't. Why do you think you are smarter than everyone else and can pick "one" best stock? Picking just one is a fools errand. But if you think you are that smart, go for it. Maybe you will get lucky.

Wrench
Wrench,

Everybody here fails to understand that I am not picking "one", but I am picking 501 stocks (only difference is I am letting S&P 500 committee choose the remaining 500 stocks for me). But people here have problem with that. They want me to pick more than one stock myself instead of letting S&P 500 committee decide it for me.
No, I get it. So you invest, what, 1% of your portfolio in your pick, the 501st stock. Two extreme outcomes: either it does well, say goes up by 50% compared to the S&P of zero. So your portfolio increases by .50*.01 = 0.5%. Or, it goes bankrupt, and your portfolio goes down by 1%. The risk to reward is not very good. In either case, is the effort worth it? If you increase the amount invested in your 501st stock, the risk to reward is no better, and even then the reward is not that high. But if you are keen on the approach, go for it. You just won't find many here that think it is a good idea for the reasons I and others have mentioned.

Wrench
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

Wrench wrote: Fri Jun 25, 2021 6:59 pm No, I get it. So you invest, what, 1% of your portfolio in your pick, the 501st stock. Two extreme outcomes: either it does well, say goes up by 50% compared to the S&P of zero. So your portfolio increases by .50*.01 = 0.5%. Or, it goes bankrupt, and your portfolio goes down by 1%. The risk to reward is not very good. In either case, is the effort worth it? If you increase the amount invested in your 501st stock, the risk to reward is no better, and even then the reward is not that high. But if you are keen on the approach, go for it. You just won't find many here that think it is a good idea for the reasons I and others have mentioned.

Wrench
Wrench,

I am thinking about 5% (this is negotiable) of the portfolio invested in a single stock with no future stealing from the S&P 500 bucket. Here is the math I previously laid out for (95% index + 5% single stock) portfolio in three different scenarios. The reality will be somewhere in between. But the math shows very low downside and very high upside:
  • The first portfolio is pure S&P 500 index and let's say it is going to give you average 10% annual return. If you invest $100 in it, that invest will become $984.97 in 25 years
  • The second portfolio is $95 (95%) S&P 500 index and $5 (5%) single stock best idea. Now imagine the worst case scenario...your best idea goes to zero and index gives annual 10%. Then your final amount after 25 years will be $935.72.
  • Now imagine the best case scenario....your best idea gives you 20% return annually and index gives you 10%. In 25 years, your final amount will be $1,333.20. And your initially 5% best idea will eventually become 29.81% of your portfolio. Not a chump change!
As such, currently I own bunch of stocks, but I am thinking this can be an ideal portfolio for me for future. I am allowed to change my best idea, but I can own only one stock at any given time. And why insist on only one stock? Because that is the only way to bring tremendous focus and discipline to this game. Besides, most of the richest people (Bezzos, Gates, Zuckerbergs, etc., etc.) became very rich by way of extremely concentrated portfolio of one single stock.
Topic Author
ZenZero
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Re: One Stock Portfolio

Post by ZenZero »

Let's talk about my current best idea, "GM" a little bit:

Past:
Back in March 2020, the world was closing due to COVID, GM was shutting down all it's factories. For any automobile manufacturer, closing plants means losses of billions of dollars. People might be thinking at that time, " Here we go again! GM is going bankrupt again". By that time, I was studying the company for more than a year and finally I had the opportunity to pounce. I had full conviction in my analysis and I immediately put 100 grand to work without any hesitation. The company obviously stopped paying dividends at that time to preserve cash, temporarily cut down employees' salaries, used their credit lines. None of those things bothered me when I made my investment at approximately $20 per share.

Present

GM is open again, current demand for their products is sky high. There are temporary issues such as chip shortage, but they are just that...temporary!
GM is going to need all that free cash flow to power their electric and autonomous vehicles programs!

Future

I give myself until December, 2023 to prove out my thesis. There can be plenty of volatility meanwhile. By December 2023, either I will be wrong on this idea (in that case GM will have no future), or their electric and autonomous vehicles programs will start bearing fruits and market will see that Tesla is not the only game in the town! If as per my expectation, GM becomes successful in this endeavour, then market will significantly rerate the company. Between now and then, there will be lots of milestones which I can use to monitor the progress. Some of those are listed below:
  • Completion of the construction of their two new battery plants in Ohio and Tennessee, and launch of their ultium battery platform
  • First edition of Hummer EV will be available later this Fall, Cadillac Lyriq will be available next year. Let's see how successful these and other electric vehicle launches will be?
  • Cruise is planning to launch the autonomous ride sharing business in San Francisco sometime in 2022, and then in Dubai in 2023. Let's see what happens with that?
  • GM has recently launched the new business Brightdrop for building commercial electric vans. First production vans are supposed to be delivered to FEDEX early next year, and there will be other customers in near future. Let's see what happens with that?
There are plenty of other milestones along the way that I can watch, and GM doesn't have to deliver 100% on each of these goals. Some may fizzle out.
If GM fails in all of the above, then I have a dead investment on hand. And I will wholeheartedly agree that I was wrong and should have put my money in the index. But if GM succeeds in these endeavors by December 2023, then it will have outperformed the index. At that time, please don't say that I am the monkey that got lucky!
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