My evil plan backfired

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mojave
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My evil plan backfired

Post by mojave »

I wasn't sure if I should post this here or in investments, but as it's more around psychology and behaviors than investments specifically I put it here.

Last fall my husband wanted to try out buying individual stocks. Long story short - I wasn't on board with the idea but he wasn't on board with index funds, he didn't think they were worth it. I agreed to try it his way, assuming we would either not make anything or would lose. I was ok with that - I saw the likely failure of this as an investment in my husband's education since he has never been as interested in personal finance as me and his eyes glaze over any time I talk about it.

So we went with two stocks, one in healthcare and the other was Kraft. Well, we all know what happened to Kraft yesterday. On top of that we accidentally bought during its second lowest point in 2014 - yesterday ended up more than doubling our initial balance, plus we will be getting a special dividend.

Don't get me wrong I'm happy about it but now husband is all excited about stocks and wants to buy others "to diversify". I used this to bring up index funds again but they are too boring to him I guess.

I could use some advice on how to tame the wild horse. I think I've brought him down to earth for a short time, explaining how unlikely this is to happen again and how this is probably just a bump and the value will level out. He mentioned a few stocks to buy (all big name consumer companies) and I asked him what he thinks the likelihood of realizing any gains on a large, stable company would be, using Pepsi as an example. He dropped it for the time being, but I know my husband and it will come up again and when it does he'll get itchy to buy more stocks. So, any thoughts, statistical arguments maybe, on how to handle this when it comes up again would be appreciated. Maybe it's even advice for me, I don't know - need a non-biased view!
centrifuge41
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Re: My evil plan backfired

Post by centrifuge41 »

Let him diversify and buy more stocks (provided that this is funded with the sale of some Kraft stock). I think that it's good for people to have experience with individual stocks. Let him observe the portfolio, and see what ends up happening.

I've spoken with some friends. My sample size is small. But it seems like upwards of 80% of individual stocks will trend down, and ~20% of individual stocks go up, many by a decent amount. It's why the overall market goes up even though most stocks trend down a bit.
Bfwolf
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Re: My evil plan backfired

Post by Bfwolf »

MWAHAHAHAHAHAHA. Sorry, had to get my evil plan laugh out of my system.

First, congrats on making money. But you're right--it's kind of like when a really bad shooter makes a 3 pointer in the beginning of a game of basketball. Great to get the 3 points, but now he/she is jacking them up for the rest of the game, and you lose in the long run.

Maybe one thing to point out is that buying a few stocks has huge volatility. He just saw the upside of that volatility, but there can also be the same amount of downside. How would he have felt if Kraft had dropped by 50% instead of being up by 50%?

Have you tried the fun money argument on him? i.e. index funds for 95% of your savings and he can do what he wants with the other 5%?
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ResearchMed
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Re: My evil plan backfired

Post by ResearchMed »

mojave wrote:I wasn't sure if I should post this here or in investments, but as it's more around psychology and behaviors than investments specifically I put it here.

Last fall my husband wanted to try out buying individual stocks. Long story short - I wasn't on board with the idea but he wasn't on board with index funds, he didn't think they were worth it. I agreed to try it his way, assuming we would either not make anything or would lose. I was ok with that - I saw the likely failure of this as an investment in my husband's education since he has never been as interested in personal finance as me and his eyes glaze over any time I talk about it.

So we went with two stocks, one in healthcare and the other was Kraft. Well, we all know what happened to Kraft yesterday. On top of that we accidentally bought during its second lowest point in 2014 - yesterday ended up more than doubling our initial balance, plus we will be getting a special dividend.

Don't get me wrong I'm happy about it but now husband is all excited about stocks and wants to buy others "to diversify". I used this to bring up index funds again but they are too boring to him I guess.

I could use some advice on how to tame the wild horse. I think I've brought him down to earth for a short time, explaining how unlikely this is to happen again and how this is probably just a bump and the value will level out. He mentioned a few stocks to buy (all big name consumer companies) and I asked him what he thinks the likelihood of realizing any gains on a large, stable company would be, using Pepsi as an example. He dropped it for the time being, but I know my husband and it will come up again and when it does he'll get itchy to buy more stocks. So, any thoughts, statistical arguments maybe, on how to handle this when it comes up again would be appreciated. Maybe it's even advice for me, I don't know - need a non-biased view!
What a "shame"! :wink:

Well, how about considering this "pot" his "speculating money" (call it what it is).
If he builds is up more, then agree what will be done with it (share for fun, retirement, part for play?).

And when it is GONE... then the party is over.

Would that work?

RM
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mojave
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Re: My evil plan backfired

Post by mojave »

I like the ideas of opening up the Kraft money to do as he pleases. It doesn't amount to much and is more of a bonus that I never expected to have. Good idea!
ShiftF5
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Re: My evil plan backfired

Post by ShiftF5 »

Anything can happen in the short term. Anything.

Like many on this board I used to trade individual stocks years ago with shall we say mixed results. Crash & Burn actually.

Your mileage may vary.

Now I'm 100% index funds and I sleep like a baby.

Best wishes.
barnaclebob
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Re: My evil plan backfired

Post by barnaclebob »

does he honestly think its luck or skill that caused him to buy kraft? I'd say most people woudl have bought that thinking it was a safe american staple company not because they thought it was going to get bought out.
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mojave
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Re: My evil plan backfired

Post by mojave »

Bfwolf wrote:MWAHAHAHAHAHAHA. Sorry, had to get my evil plan laugh out of my system.

First, congrats on making money. But you're right--it's kind of like when a really bad shooter makes a 3 pointer in the beginning of a game of basketball. Great to get the 3 points, but now he/she is jacking them up for the rest of the game, and you lose in the long run.

Maybe one thing to point out is that buying a few stocks has huge volatility. He just saw the upside of that volatility, but there can also be the same amount of downside. How would he have felt if Kraft had dropped by 50% instead of being up by 50%?

Have you tried the fun money argument on him? i.e. index funds for 95% of your savings and he can do what he wants with the other 5%?
It really is kind of funny. We did agree on this being just fun money so we didn't put that much in. He has agreed that index funds have their place and we do have them in our retirement accounts. But, I'm still trying to convince him to use it in more "short" term accounts as well (ie, not 30 years down the road).
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Leif
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Re: My evil plan backfired

Post by Leif »

Since he now has a new found interest in investing perhaps he would be willing to check out a few books to increase his knowledge. I'm sure you could suggest a few books to help him. I would recommend Jack Bogle as he author of a good book or two, such as "The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns"
Last edited by Leif on Thu Mar 26, 2015 4:29 pm, edited 1 time in total.
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Taylor Larimore
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Individual stocks vs professionally managed mutual funds?

Post by Taylor Larimore »

So, any thoughts, statistical arguments maybe, on how to handle this when it comes up again would be appreciated. Maybe it's even advice for me, I don't know - need a non-biased view!
Mojave:

Show your husband these quotes by investing authorities:
Brett Arends, Wall Street Journal columnist: "Buy individual stocks only as a gamble."

Benjamin Graham: "I have little confidence, even in the ability of analysts, let alone untrained investors, to select common stocks what will give better than average results."

Bill Bernstein, author of The Four Pillars of Investing: "Picking individual stocks is like volleying with the Williams sisters."

Jack Bogle: "Attempting to build an investment program around a handful of individual securities is, for all but the most exceptional investors, a fool's errand."

Adam Bold, author, adviser: "Mutual funds don't have the pizzazz of the hot stocks of the moment. If you're looking for entertainment, go gambling in Las Vegas. But if you want to accumulate real money for your retirement and other goals, mutual funds are the safer bet.

Dalbar Research Report (July 15, 2003): "The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S & P 500 index earned annually for the last 19 years."

Charles Ellis author of Winning the Loser's Game: "If you, like Walter Mitty, still fantasize that you can and will beat the pros, you'll need both luck and prayer."

Sy Harding, Forbes contributor: "My advice – avoid individual stocks! Even experienced full-time professional money managers, with staffs of trained people performing research, with access to data, software, and corporate contacts that most part-time investors could not come close to duplicating, struggle to match the market’s performance by buying, holding, or selling individual stocks."

Mathwizard: The vast majority of trades you would make are between you and a professional investor. Both of you are assigning a value to the stock, and one of you thnks the price is high and another thinks it is low. Who do you suppose is more likely to be right.

Standard & Poor's: When the S&P 500 index was officially formed in 1957 to its 50th anniversary in 2007, only 86 of the original 500 companies still remained.

Larry Swedroe, author of many financial books: "Owning individual stocks and sector funds is more akin to speculating, not investing."

David Swensen, Chief Investment Officer of Yale University: "There's no way that spending a few hours a week looking at individual securities is going to equip an investor to compete with the incredibly talented, highly qualified, extremely educated individuals who spend their entire professional careers trying to pick stocks."

Eric Tyson, author of Mutual Funds for Dummies: The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time, experienced money managers is, how should I say, ludicrous and absurd."
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
sk.dolcevita
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Re: My evil plan backfired

Post by sk.dolcevita »

If you cannot make him walk back, how about if he plays with his house money? That is the money he won in the gamble he took. That would be his own mini-hedge fund! I would recommend two things if he does this - (1) open a separate account with his house money, and (2) absolutely no trading on margin (although I would not be surprised if next thing you hear is him wanting to trade options).

Good luck!
user5027
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Re: My evil plan backfired

Post by user5027 »

Reminds me of the backhanded compliment tossed around the office after you do something good...

"Even a blind squirrel will find a nut every once and a while."
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FelixTheCat
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Re: My evil plan backfired

Post by FelixTheCat »

There's more than one path to financial freedom. Let the guy have his play money. Set 5% of your entire portfolio for his individual stocks. He might change his tune when he buys a couple of Enron's.
Felix is a wonderful, wonderful cat.
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Epsilon Delta
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Re: My evil plan backfired

Post by Epsilon Delta »

Never buy individual stocks. There are only two things that can happen. The bad one is you lose money. The worse one is you think you're a genius.

(That's not original, but it's too badly mangled for Google to help with the attribution).
Carefreeap
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Re: My evil plan backfired

Post by Carefreeap »

mojave wrote:I like the ideas of opening up the Kraft money to do as he pleases. It doesn't amount to much and is more of a bonus that I never expected to have. Good idea!
+1

We have a good sized taxable fund which is 70% individual stocks that DH inherited and about 30% bond funds. The account is in both of our names. DH trades/sells a stock once or twice a year. The rest of our money is in retirement index funds and real estate. I would prefer an S&P index fund but some of these stocks were purchased in the early 70s and would have a sizable gain. And as one of my friends on another internet forum commented, it's almost like they are their own index fund.

Let your DH have a little fun. There are worse things he can blow er spend his money on! :wink:
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AviN
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Re: My evil plan backfired

Post by AviN »

The expected return of a randomly selected individual stock is the same as the total stock market [*], but risk (as measured by standard deviation) is around 3 times as high:

http://www.ppca-inc.com/articles/DiversByNumbers.pdf

So, the only way this could be worth it is if your husband can pick stocks so much better than random that he can make up for the huge increase in risk. Ask him if that seems likely to him.

If he really is so risk tolerant, then he is better off increasing risk by investing in something like 100% small-cap value or investing in total stock market on leverage. Then at least he will be compensated for his risk with higher expected return.

One caveat here is that diversifying into multiple individual stocks across multiple industries reduces risk. But then his job as a stock picker becomes even more difficult, because now he needs to become an expert in multiple stocks and multiple industries. And even with a portfolio of many, many stocks, there are still problems with tracking error that makes underperformance likely.

Avi

[*] or maybe a little higher, since there will be some positive exposure to the small-cap factor.
edge
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Re: My evil plan backfired

Post by edge »

Make sure he is bench-marking and tracking performance accurately. Eventually he will fall behind and you might be able to reopen the conversation.
CoAndy
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Re: My evil plan backfired

Post by CoAndy »

Did he buy Kraft based on research or is he throwing darts?
cherijoh
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Re: My evil plan backfired

Post by cherijoh »

Carefreeap wrote:
mojave wrote:I like the ideas of opening up the Kraft money to do as he pleases. It doesn't amount to much and is more of a bonus that I never expected to have. Good idea!
+1

We have a good sized taxable fund which is 70% individual stocks that DH inherited and about 30% bond funds. The account is in both of our names. DH trades/sells a stock once or twice a year. The rest of our money is in retirement index funds and real estate. I would prefer an S&P index fund but some of these stocks were purchased in the early 70s and would have a sizable gain. And as one of my friends on another internet forum commented, it's almost like they are their own index fund.

Let your DH have a little fun. There are worse things he can blow er spend his money on! :wink:
You do realize that he got a stepped up basis when he inherited the funds, don't you? He could have sold them and only had to pay the capital gains on any gains since inheritance. he can still do this, but depending on when they were inherited there could be considerable gains. But the purchase price is NOT the cost basis for inherited assets.
ShiftF5
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Re: My evil plan backfired

Post by ShiftF5 »

user5027 wrote:Reminds me of the backhanded compliment tossed around the office after you do something good...

"Even a blind squirrel will find a nut every once and a while."
I've always liked that one. :)
ShiftF5
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Re: Individual stocks vs professionally managed mutual funds

Post by ShiftF5 »

Taylor Larimore wrote:
So, any thoughts, statistical arguments maybe, on how to handle this when it comes up again would be appreciated. Maybe it's even advice for me, I don't know - need a non-biased view!
Mojave:

Show your husband these quotes by investing authorities:
Brett Arends, Wall Street Journal columnist: "Buy individual stocks only as a gamble."

Benjamin Graham: "I have little confidence, even in the ability of analysts, let alone untrained investors, to select common stocks what will give better than average results."

Bill Bernstein, author of The Four Pillars of Investing: "Picking individual stocks is like volleying with the Williams sisters."

Jack Bogle: "Attempting to build an investment program around a handful of individual securities is, for all but the most exceptional investors, a fool's errand."

Adam Bold, author, adviser: "Mutual funds don't have the pizzazz of the hot stocks of the moment. If you're looking for entertainment, go gambling in Las Vegas. But if you want to accumulate real money for your retirement and other goals, mutual funds are the safer bet.

Dalbar Research Report (July 15, 2003): "The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S & P 500 index earned annually for the last 19 years."

Charles Ellis author of Winning the Loser's Game: "If you, like Walter Mitty, still fantasize that you can and will beat the pros, you'll need both luck and prayer."

Sy Harding, Forbes contributor: "My advice – avoid individual stocks! Even experienced full-time professional money managers, with staffs of trained people performing research, with access to data, software, and corporate contacts that most part-time investors could not come close to duplicating, struggle to match the market’s performance by buying, holding, or selling individual stocks."

Mathwizard: The vast majority of trades you would make are between you and a professional investor. Both of you are assigning a value to the stock, and one of you thnks the price is high and another thinks it is low. Who do you suppose is more likely to be right.

Standard & Poor's: When the S&P 500 index was officially formed in 1957 to its 50th anniversary in 2007, only 86 of the original 500 companies still remained.

Larry Swedroe, author of many financial books: "Owning individual stocks and sector funds is more akin to speculating, not investing."

David Swensen, Chief Investment Officer of Yale University: "There's no way that spending a few hours a week looking at individual securities is going to equip an investor to compete with the incredibly talented, highly qualified, extremely educated individuals who spend their entire professional careers trying to pick stocks."

Eric Tyson, author of Mutual Funds for Dummies: The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time, experienced money managers is, how should I say, ludicrous and absurd."
Best wishes.
Taylor
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itstoomuch
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Re: My evil plan backfired

Post by itstoomuch »

I fugue 1 in 3 selections will make me $. Maybe 1 in 6 will individual company investing makes it all worthwhile. :mrgreen:
MY 2015 biggest losers are long US treasury and Utilities.
MY 2015 winners are cash, cash, and cash.
Your Spouse's results may vary :beer
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Re: My evil plan backfired

Post by itstoomuch »

Which 5 selections to lose money is the hard part. :oops:
I am dialing down trading, 65/68 yo, and the retirement funds are secured regardless of a major crash. :beer
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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Re: My evil plan backfired

Post by Petrocelli »

My first investment was a $10,000 investment at $1 a share that went to well over $30 a share. I took the money from that investment and bought a house, and then another house. 25 years later, I have over $2,000,000 in equity in that house, and it started with a $10,000 investment.

Based on that, my advice is leave your husband alone.
Petrocelli (not the real Rico, but just a fan)
skjoldur
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Re: My evil plan backfired

Post by skjoldur »

Here is an appropriate quote from "Fooled by Randomness" by Nassim Taleb:

"There is a belief among gamblers that beginners are almost always lucky. “It gets worse later, but gamblers are always lucky when they start” is something you hear. This statement is actually empirically true: A researcher would confirm that gamblers had lucky beginnings (the same applies to speculators). Does it mean that each one of us should become a gambler for a while until he stops being a beginner?


The answer is no. The same optical illusion prevails: those who start gambling will be lucky and unlucky, say in equal numbers (actually given that the casino has the advantage, slightly more people will be unlucky than lucky). The lucky ones, under the feeling of having been selected by destiny, will go on to continue gambling; the others, discouraged, will stop and will not show up in the sample. They will probably take up, depending on their temperament, bird watching, scrabble, or other pastimes. Those who continue with their gambling habit will remember having been lucky as beginners. The dropouts, by definition will no longer be part of the gamblers community. This explains the beginner’s luck."
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Re: My evil plan backfired

Post by LadyGeek »

mojave wrote:I wasn't sure if I should post this here or in investments, but as it's more around psychology and behaviors than investments specifically I put it here.
How about: This thread is now in the Investing - Theory, News & General forum (behavioral finance / investing).
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Waba
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Re: My evil plan backfired

Post by Waba »

VDC and VHT offer great diversification. It will surely have the next Kraft in there, how would your husband feel if he missed out on the next Kraft? You need to have them all.
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Re: My evil plan backfired

Post by robert88 »

FelixTheCat wrote:Let the guy have his play money. Set 5% of your entire portfolio for his individual stocks.
I hate the term play money. Play money to me is money that you could easily afford to lose, the type that you can lose entirely and not lose one night's sleep. If you anyone posted on this forum that they budgeted 5% of their net worth to be spent at the casino or on sports betting each year, we would all agree that person has a serious gambling addiction.
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Re: My evil plan backfired

Post by Leeraar »

Sit back, relax, enjoy. Go out for a good dinner, stay home with a bottle of champagne, or whatever your self-indulgences are.

I sure hope your husband does not think the Heinz/Kraft thing is anything but good luck.

30 years ago, I bought the original Silicon Graphics (SGI) for $7. It went to $75. I later sold for $14, doubled my money in four years! That was enough to teach me I do not have the temperament for individual stocks.

There's a lesson here, if he will listen. It is that the overall market "average" is driven by a few stellar performers, and no one knows who those will be. For every Kraft there are four or five under-performers. Maybe he's a genius or a savant, but he is much more likely to pick a dud than a shooting star. Because, there are many more duds than shooting stars.

Add to that, that individual investors mostly dollar-weight rather than cap-weight, and picking individual stocks becomes a very risky game.

L.
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Re: My evil plan backfired

Post by Jack FFR1846 »

It only went up 50%? Go to Vegas and put it all on red. How could you possibly lose?
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4nursebee
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Re: My evil plan backfired

Post by 4nursebee »

Your husband is lost.
The quotes offered won't help him.
If you need the money, consider not being a "good wife" and turn your "B" on.

What is your overall investment plan?
Get one, stick to it.
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Re: My evil plan backfired

Post by dhodson »

id recommend asking the funds be split 50/50 into index and his active. The index is your half. Give it time. Over many years you should do better. If not then im guessing you are Mrs. Buffet :)
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nedsaid
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Re: My evil plan backfired

Post by nedsaid »

I will repeat the advice given by the National Association of Investment Clubs. That is if you buy five carefully chosen stocks: one will bomb, three will perform about as expected, and one will perform beyond your wildest expectations. To do this right, it takes a lot of time to properly research stocks and even after all the time at the library, you will probably not outperform the market.

I have had my successes with individual stocks and I have had my disasters. When you experience a disaster like Lucent, AIG, or Nortel it really hurts. There is a flip side to your husband's experience with Kraft.

Insist that the bulk of your retirement be invested in index funds and let your husband pick some stocks. At some point he will figure out that he is not the next Warren Buffett or Peter Lynch.
A fool and his money are good for business.
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bottlecap
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Re: My evil plan backfired

Post by bottlecap »

Y'all bought two lottery tickets and one of them hit. The lottery is not an investment strategy!

I agree that it's a good idea to let him have a play account that is gone when it's gone.

As for talking your husband down, remind him that 2 is a really really, really, really small sample size. No one is going to buying his investment newsletter just yet. i preume you didn't buy Kraft because you thought it would merge with Heinz. Remind him of that - the stock didn't go up because Kraft's business got materially better since you bought; you just walked into dumb luck. These companies have been around for decades. You just unintentionally bought a short time before this decision was announced. This if, anything, should demonstrate the futility if picking winners. For all you knew, it could have announced an Enron type scandal and gone to zero.

So congrats on making some money, although you won't enjoy it if your husband uses it as his gambling fund!

JT
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ResearchMed
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Re: My evil plan backfired

Post by ResearchMed »

dhodson wrote:id recommend asking the funds be split 50/50 into index and his active. The index is your half. Give it time. Over many years you should do better. If not then im guessing you are Mrs. Buffet :)
Although I already "voted", with a suggestion that you and he arrange for his "winnings" to be his little pot, I do think there is a "learning experience" here, too.

Either split his pot 50/50, or if he is already counting on the entire pot (or otherwise balking at this), then just match it with a separate pot within your investment account.
Keep it separate, and revisit the totals in... 1 year? 5?

If he "wins", then he has a larger pot to keep "playing" with.
If not, the party is over, or at least, he only keeps working with "what is left".

No matter what, this should be both enjoyable (hopefully for both of you!), and work out well in the long run, either way.

RM
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goingup
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Re: My evil plan backfired

Post by goingup »

skjoldur wrote:Here is an appropriate quote from "Fooled by Randomness" by Nassim Taleb:

"There is a belief among gamblers that beginners are almost always lucky. “It gets worse later, but gamblers are always lucky when they start” is something you hear. This statement is actually empirically true: A researcher would confirm that gamblers had lucky beginnings (the same applies to speculators). Does it mean that each one of us should become a gambler for a while until he stops being a beginner?


The answer is no. The same optical illusion prevails: those who start gambling will be lucky and unlucky, say in equal numbers (actually given that the casino has the advantage, slightly more people will be unlucky than lucky). The lucky ones, under the feeling of having been selected by destiny, will go on to continue gambling; the others, discouraged, will stop and will not show up in the sample. They will probably take up, depending on their temperament, bird watching, scrabble, or other pastimes. Those who continue with their gambling habit will remember having been lucky as beginners. The dropouts, by definition will no longer be part of the gamblers community. This explains the beginner’s luck."
Thank you for this! Fascinating!

I was just pondering why when a person succeeds, as Mojave's husband did, we all make sure to call it luck. But if the investment had failed we might just call it..dumb. Not unlucky. Why the distinction?

I gave up individual stocks long ago, but for one legacy holding and the yearly options my partner receives. Too much fretting about holding, buying, selling decisions.
Andyrunner
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Re: My evil plan backfired

Post by Andyrunner »

Maybe argue to split the money 50/50. 50% index funds 50% picking stocks. You are in a marriage so your say should count for 50% on the decisions. See who wins over 2-3 years, just don't forget to count in trading fees.
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Re: My evil plan backfired

Post by Leeraar »

I am just fascinated by all the suggestions that involve behavioral aspects. And, by the way, did you cash out the gain, or is it just on paper?

The best thing you can do is to write out an investment policy statement that you both agree to follow.

L.
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Bfwolf
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Re: My evil plan backfired

Post by Bfwolf »

robert88 wrote:
FelixTheCat wrote:Let the guy have his play money. Set 5% of your entire portfolio for his individual stocks.
I hate the term play money. Play money to me is money that you could easily afford to lose, the type that you can lose entirely and not lose one night's sleep. If you anyone posted on this forum that they budgeted 5% of their net worth to be spent at the casino or on sports betting each year, we would all agree that person has a serious gambling addiction.
I understand your point, but the situations are not really analogous. Gambling at a casino has an expected loss. Buying individual stocks has an expected gain (just like buying the entire stock market does); it just has much more risk/volatility than buying the entire stock market. So buying individual stocks isn't frittering away your money like gambling at a casino is--it's just creating a much broader realm of likely outcomes. That's undesirable, but if it's only 5% of your money, it's manageable.
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Re: My evil plan backfired

Post by wolf359 »

I recently read something relevant in "The Investor's Manifesto," but I think William Bernstein was quoting someone else.

Would I ever consider playing serious football against pro NFL players? Of course not. Those guys are huge, fast, and can take and deliver a lot more pain than I can.

Now, consider that 90% of the stock market volume is conducted by institutional traders. That's the Wall Street equivalent of the Pro players. They're educated with Masters and Doctorates in Finance, well funded, have costly resources and research available to them, and do this all day long.

It's possible to get lucky, and it's possible to play at their level. But is it likely that you will beat them over the long run? At what cost and effort? Most of the time, that's who's on the other side of the trade.

Index funds, for me, please. In index funds, you're the house and the odds are with you.
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Re: My evil plan backfired

Post by ShiftF5 »

How about letting your husband read all the responses and see what conclusion he comes to?
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mojave
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Re: My evil plan backfired

Post by mojave »

Thanks everyone, appreciate all of the insight. Sadly, we will not be able to buy a house with this lol - this amount doesn't even make up 1% of our portfolio, so it's really a drop in the bucket. Just me being cautious.
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Re: My evil plan backfired

Post by Pizzasteve510 »

Most of the advice above is solid.

If you do chose to let him invest in individual equities I would suggest a few rules.

1) set a limit per stock to avoid concentration (e.g. 10k is a max buy)
2) buy a portfolio of stocks, at least 10, 20 is better
3) require some research or logic behind the buys. Ask him to articulate why the buy is a good value
4) no trading, buy and hold is the plan, with specific criteria for selling (e.g. To rebalance to maintain #1)
Last edited by Pizzasteve510 on Sun Mar 29, 2015 11:30 pm, edited 1 time in total.
itstoomuch
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Re: My evil plan backfired

Post by itstoomuch »

wolf359 wrote:Now, consider that 90% of the stock market volume is conducted by institutional traders. That's the Wall Street equivalent of the Pro players. They're educated with Masters and Doctorates in Finance, well funded, have costly resources and research available to them, and do this all day long.
My older bro (71) has a phD in Economics, careerist, risk management, now special projects advisory to management. From what I have seen, the big boy-Systemic Risk Companies, lose quite often and lose big. Their expertise is no better than anyone else when it comes to making AND losing money. JMHO. :annoyed
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Re: My evil plan backfired

Post by itstoomuch »

mojave wrote:Thanks everyone, appreciate all of the insight. Sadly, we will not be able to buy a house with this lol - this amount doesn't even make up 1% of our portfolio, so it's really a drop in the bucket. Just me being cautious.
Hope the amount wagered was more than 10 shares. :confused
BTDT :annoyed
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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Re: My evil plan backfired

Post by Longdog »

How about each of you starting with the same $$$ amount to invest as you see fit. You do your thing with index funds. He does his thing with individual stocks, each in a separate account. After each year, subtract off the taxes owed on the investments from each account, and continue investing the rest. If you want to keep adding, add the same amount to each account. It shouldn't take too long to either prove to him that indexing is the better approach, or for you to learn that your husband is an expert stock-picker!

I think your husband is viewing this as a fun game to be played, not as a serious long-term investment that could have profound impacts on your future.
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Epsilon Delta
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Re: My evil plan backfired

Post by Epsilon Delta »

SteveM wrote:It shouldn't take too long to either prove to him that indexing is the better approach, or for you to learn that your husband is an expert stock-picker!
What's the t-stat on that?

Long answer, it will most likely take longer than your life span to get anything close to "proof" in either direction.
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Re: My evil plan backfired

Post by Petrocelli »

mojave wrote:Thanks everyone, appreciate all of the insight. Sadly, we will not be able to buy a house with this lol - this amount doesn't even make up 1% of our portfolio, so it's really a drop in the bucket. Just me being cautious.
One percent?!!!???

On behalf of husbands everywhere, please let your husband have some fun. Leave him alone.
Petrocelli (not the real Rico, but just a fan)
Bill M
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Re: My evil plan backfired

Post by Bill M »

Petrocelli wrote:One percent?!!!???

On behalf of husbands everywhere, please let your husband have some fun. Leave him alone.
+1
It seems to me that you've set the table stakes, and he has won the first hand. The game is still young.

If the amount you've staked him is less than the cost of a college education, he'll almost certainly go bust before turning a regular profit.
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mojave
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Re: My evil plan backfired

Post by mojave »

Petrocelli wrote:
mojave wrote:Thanks everyone, appreciate all of the insight. Sadly, we will not be able to buy a house with this lol - this amount doesn't even make up 1% of our portfolio, so it's really a drop in the bucket. Just me being cautious.
One percent?!!!???

On behalf of husbands everywhere, please let your husband have some fun. Leave him alone.
This was the amount we agreed on, I did not force this on him.
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