The Dangerous Allure of Individual Stocks

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gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: The Dangerous Allure of Individual Stocks

Post by gougou »

theac wrote: Sun Jan 16, 2022 8:00 pm
gougou wrote: Sun Jan 16, 2022 11:31 am
theac wrote: Sat Jan 15, 2022 11:53 pm
I wasn't going comment in this topic, but your short and sweet answer hooked me in! :happy

In the early 2000s I decided to give stocks a shot, so spent A LOT of time researching stuff, "thinking" I was learning something, and finally decided to start lightly, with an experiment.

Decided on 4 "dependable" and well-establish stocks at $2,000 each:

Citibank--long time in the business

Peabody Energy BTU--long time in the business, largest coal miner in the world, US or somewhere (I don't remember)

DOW Chemical--long time in the business, like "forever"

Conoco-Philips--Oil Refinery, been around "forever"

Anyway, Citibank went to zero (bankrupt), washed its hands of the stock holders (but kept their money) and are back in "business"

BTU, eventually went to zero also, total loss for stock holders, back in business

DOW Chemical, eventually dropped, and for a long time the $2k hung around $700 or $800 range, and just figured I'd let that experiment also run its way down to zero, but it "miraculously" recovered and sold it a year or two ago for like $2,200 (don't remember).

Conoco-Philips, I think that too ended up a bit above the $2k when I sold a year or two ago

So I feel I learned a lot from that "experiment!" :D

But soon after I started this experiment in the early 2000s, since all 4 of the above stocks were up as high as $3,000 for a time (and paying dividends) I bought a couple of more stocks:

SJT (Nat Gas Trust) I think I put $2,000 into it, and it was paying a monthly dividend of like 12% and also went up in value per share (for a while). Still have it today, and a year or 2 ago it was at like $2 a share, and I was just laughing it off and waiting for zero, but the paramedics arrive, and got its pulse going :D .

It's at $7.27 so a bit over $1k now and dividend which was next to nothing, and even at zero for a short time, but up to like $20 a month now IIRC (don't even really care). :D

Then got 100 shares of Microsoft (in 2005) at about $27. For years was flat, paying a small dividend, and I just let it ride. A few years back it started coming to life, and about a year ago I "got scared" by its sudden rise and decided I better get rid of it before it turns around. Sold it for like $170 a share. Then watched it continue to rise, so dropped it from my Yahoo Homepage portfolio, just to avoid a case of the "I shoulda." Just had a look, it's at $310, but has been up to $350. Still, at least it helped make up for the losses of Citibank etc so that's good. (I know, the pandemic had been good for some tech stocks, and I got rid of it during that time).

SLV (Silver) Also in the early 2000s got 300 shares at $10. It eventually skyrocketed later so sold it at $28, then watched it go to like $48, then fall like a rock and decided I better buy back in "a little" at $28, then a bit more at low $20s, then at like $16?

So I'm at about break-even on that right now IIRC, about $6,200, roughly the house money I got when I sold the original shares at $28.

Oh, one day soon after I sold at $28 and it's shooting way up now, talking to a friend I told him the whole story, he thought I did great and at least made a profit (plus no taxes in a ROTH) but I didn't really feel so great about it. Still, could have been a lot worse.

TGP (Nat Gas Transport) I think I put $3k in that, was paying a great quarterly dividend for a long time, cut back for a while, and is back up with pretty good dividend. It's at like $5,800 now, and I believe there was a time it was up much more than that, like $12k or $13k I forget now. I think it was 200 shares at $15 when I got it, and have reinvested the Div at times, and other times just taken as cash. So more than $5,800 I guess.

Anyway, what "I" learned from stocks, "They're not for me."
Stick to Mutual Funds, and actually, I don't even care to be "an investor" anymore.
I'm happy with "low stress" boring old bonds, and if I get negative return, hey I sleep fine every night (and not under a bridge), whatever I want is in my fridge, nobody knocks at my door saying I owe them money, life is good. :happy

I'm comfortable with my pension, will get SS in the near future. Haven't taken because what to do with the money? Just more numbers on a computer screen. And my portfolio is just "insurance" or a cushion, just in case.

For those who are into stocks, whether individual or in a fund, to each his own.
I really don't have the stomach for it (nor the interest) anymore.

But it was an interesting experience! :D

And if I had to pick between individual stocks and diversified low-cost funds,
it's definitely the funds.

P.S. Opps, forgot to mention the Gold Funds I still have:

In early 2000s put $3k into TGVBX (I think, has changed), and was later as high as $13k, but is down at about $7k or $8k now.

In 2008 put $5k into USAA (IIRC) gold fund, was down for a long time, is a bit above the $5k now.

As you can see, it's a fairly long story so didn't really want to bore anyone with it, or take up too much thread-space, but there it is.
The lesson is “been in business like forever” or “12% dividend yield” isn’t a good enough criteria to pick stocks. I think you’ll do well with your index funds. But my experiment is ongoing and we’ll see how it goes for the next 10 or 20 years.
Oh I agree, and also that index funds is the way to go.

That's why I ended my post with, if I was going to invest in the market, it would be with diversified low-cost funds. (I accidentally left out "INDEX" but that's what I meant to say).

I remember when I had first started researching mutual funds in the early 2000s, before I knew about Vanguard and Index Funds. I was looking at Dodge and Cox and other names I don't even remember, comparing their holdings etc., and man, compared to Vanguard they had ridiculous fees. Glad I never went down that road. Usually the more complicated something is made, the more traps to fall into.

So a simple 3 fund portfolio is all you really need.
I forget the name, "Coffeehouse Portfolio" or some such name.
Or even just Total Stock Market and Total Bond Market Indexes will do.

To me, the lesson was "you're playing against a stacked deck."
Especially with individual stocks.
And regardless of how good it looks today,
or how good it has looked for the last 100 years,
or how good you think it's going to be tomorrow,
it's all still gambling--just a matter of degrees.
And you never know ANYTHING for sure.

And it doesn't help that the laws, such as bankruptcy,
are set up to their advantage, not yours.

I'm just glad my "experiment" was done with small money.
I'm sure a lot of people lost big money when Citibank and Peabody went to zero.
Or rather, when they "rebooted."

And since the shareholders were just kept in the RAM memory,
with the reboot, "poof," your gone!
While what was once your money, stays safely in the hard drive, for them.
If you think "you're playing against a stacked deck.", does that mean you shouldn't even touch index funds? Because that's just a basket of stocks which, according to you, are all rigged against you.

Your individual stock experiment may have done better than you think. It looks like you may have beaten the market with that 10-bagger MSFT even though two other stocks went to zero and most other stocks were just average. And that's without a clear strategy, or at least you are not explaining your strategy clearly.

I mean I've seen enough people lost money on individual stocks and swear to never touch individual stocks. You sound like one of them. But if you lost money on real estate do you swear to never own real estate? If you start a business and that failed do you swear to never start another business? Or if you lost money on index funds do you swear to never touch index funds? There are people who learn from their mistakes and do consistently well in entrepreneurship. There are also people who consistently make money in real estate and stock investing.

If you don't have a strategy, then the index fund strategy is a pretty good strategy for you. It's probably a good strategy for most people who either couldn't or never bothered to figure out why they lost money. You'll stay invested and earn some average market return. And hopefully you don't sell out at the bottom and swear to never touch it again.

But for many people, they'll gamble on a good opportunity in life. If you get a good risk/reward then gambling is worth it with reasonable risk management. The gamble could be a startup business or some individual stocks. It will highly depend on the skill of the individual investor and very few will be successful, but those who are successful are usually very successful.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
CurlyDave
Posts: 3182
Joined: Thu Jul 28, 2016 11:37 am

Re: The Dangerous Allure of Individual Stocks

Post by CurlyDave »

vanbogle59 wrote: Sun Jan 16, 2022 10:28 pm
...I agree the market is not zero sum. Trying to beat it (by picking individual stocks) is.
"Zero Sum" is a mathematical term, which is used to describe a situation where all wins by some parties must come from losses by other parties.

If investing in a total stock market index is not zero sum, it is impossible for investing in individual stocks to be zero sum, since TSM is the sum of all individual stocks.

One can certainly be correct in saying that investing in individual stocks is unwise and risky for many of us, but stating that it is zero sum is absolutely untrue.
Answering a question is easy -- asking the right question is the hard part.
vtsnowdin
Posts: 244
Joined: Thu Dec 30, 2021 2:54 pm

Re: The Dangerous Allure of Individual Stocks

Post by vtsnowdin »

When playing with your small money there is also the news of the times to consider. When the pandemic started the UPS trucks started making almost daily deliveries so I thought there was no way they would not have a good year or two going forward so I bought a few shares. Mine are up 24% from my cost basis. Then the news was they had the first vaccines in trials that would take a few months to complete (Sept. 2020) so I bought Moderna and Pfizer and they have done very well for me. Then there was Exxon which had made a co-worker of mine rich over decades which had been removed from the DOW and beaten down to $33/ share but was still paying an 8% dividend in spite of the low oil price. Up 57% from my cost basis. I bought a few shares at a time over ten months so it averaged to $45.54/ share.
The news brought that Vista outdoors (VSTO) had a billion dollars of orders for ammunition in front of it and more coming in faster then their rate of production. I placed a $100 chip on it which is now worth $123.69.
I have a few losers as well but some of them are just still waiting to move ahead like Lithium mining companies and a local company that makes precision bearings used in electric car motors and rocket engines.
When buying lottery tickets all the tickets look the same. The pool of stocks you choose to pick from are all different and you can look them over and some look like thoroughbreds and others broken down old mules.
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theac
Posts: 802
Joined: Fri Dec 12, 2008 5:00 am

Re: The Dangerous Allure of Individual Stocks

Post by theac »

gougou wrote: Sun Jan 16, 2022 11:48 pm
theac wrote: Sun Jan 16, 2022 8:00 pm
gougou wrote: Sun Jan 16, 2022 11:31 am
theac wrote: Sat Jan 15, 2022 11:53 pm
I wasn't going comment in this topic, but your short and sweet answer hooked me in! :happy

In the early 2000s I decided to give stocks a shot, so spent A LOT of time researching stuff, "thinking" I was learning something, and finally decided to start lightly, with an experiment.

Decided on 4 "dependable" and well-establish stocks at $2,000 each:

Citibank--long time in the business

Peabody Energy BTU--long time in the business, largest coal miner in the world, US or somewhere (I don't remember)

DOW Chemical--long time in the business, like "forever"

Conoco-Philips--Oil Refinery, been around "forever"

Anyway, Citibank went to zero (bankrupt), washed its hands of the stock holders (but kept their money) and are back in "business"

BTU, eventually went to zero also, total loss for stock holders, back in business

DOW Chemical, eventually dropped, and for a long time the $2k hung around $700 or $800 range, and just figured I'd let that experiment also run its way down to zero, but it "miraculously" recovered and sold it a year or two ago for like $2,200 (don't remember).

Conoco-Philips, I think that too ended up a bit above the $2k when I sold a year or two ago

So I feel I learned a lot from that "experiment!" :D

But soon after I started this experiment in the early 2000s, since all 4 of the above stocks were up as high as $3,000 for a time (and paying dividends) I bought a couple of more stocks:

SJT (Nat Gas Trust) I think I put $2,000 into it, and it was paying a monthly dividend of like 12% and also went up in value per share (for a while). Still have it today, and a year or 2 ago it was at like $2 a share, and I was just laughing it off and waiting for zero, but the paramedics arrive, and got its pulse going :D .

It's at $7.27 so a bit over $1k now and dividend which was next to nothing, and even at zero for a short time, but up to like $20 a month now IIRC (don't even really care). :D

Then got 100 shares of Microsoft (in 2005) at about $27. For years was flat, paying a small dividend, and I just let it ride. A few years back it started coming to life, and about a year ago I "got scared" by its sudden rise and decided I better get rid of it before it turns around. Sold it for like $170 a share. Then watched it continue to rise, so dropped it from my Yahoo Homepage portfolio, just to avoid a case of the "I shoulda." Just had a look, it's at $310, but has been up to $350. Still, at least it helped make up for the losses of Citibank etc so that's good. (I know, the pandemic had been good for some tech stocks, and I got rid of it during that time).

SLV (Silver) Also in the early 2000s got 300 shares at $10. It eventually skyrocketed later so sold it at $28, then watched it go to like $48, then fall like a rock and decided I better buy back in "a little" at $28, then a bit more at low $20s, then at like $16?

So I'm at about break-even on that right now IIRC, about $6,200, roughly the house money I got when I sold the original shares at $28.

Oh, one day soon after I sold at $28 and it's shooting way up now, talking to a friend I told him the whole story, he thought I did great and at least made a profit (plus no taxes in a ROTH) but I didn't really feel so great about it. Still, could have been a lot worse.

TGP (Nat Gas Transport) I think I put $3k in that, was paying a great quarterly dividend for a long time, cut back for a while, and is back up with pretty good dividend. It's at like $5,800 now, and I believe there was a time it was up much more than that, like $12k or $13k I forget now. I think it was 200 shares at $15 when I got it, and have reinvested the Div at times, and other times just taken as cash. So more than $5,800 I guess.

Anyway, what "I" learned from stocks, "They're not for me."
Stick to Mutual Funds, and actually, I don't even care to be "an investor" anymore.
I'm happy with "low stress" boring old bonds, and if I get negative return, hey I sleep fine every night (and not under a bridge), whatever I want is in my fridge, nobody knocks at my door saying I owe them money, life is good. :happy

I'm comfortable with my pension, will get SS in the near future. Haven't taken because what to do with the money? Just more numbers on a computer screen. And my portfolio is just "insurance" or a cushion, just in case.

For those who are into stocks, whether individual or in a fund, to each his own.
I really don't have the stomach for it (nor the interest) anymore.

But it was an interesting experience! :D

And if I had to pick between individual stocks and diversified low-cost funds,
it's definitely the funds.

P.S. Opps, forgot to mention the Gold Funds I still have:

In early 2000s put $3k into TGVBX (I think, has changed), and was later as high as $13k, but is down at about $7k or $8k now.

In 2008 put $5k into USAA (IIRC) gold fund, was down for a long time, is a bit above the $5k now.

As you can see, it's a fairly long story so didn't really want to bore anyone with it, or take up too much thread-space, but there it is.
The lesson is “been in business like forever” or “12% dividend yield” isn’t a good enough criteria to pick stocks. I think you’ll do well with your index funds. But my experiment is ongoing and we’ll see how it goes for the next 10 or 20 years.
Oh I agree, and also that index funds is the way to go.

That's why I ended my post with, if I was going to invest in the market, it would be with diversified low-cost funds. (I accidentally left out "INDEX" but that's what I meant to say).

I remember when I had first started researching mutual funds in the early 2000s, before I knew about Vanguard and Index Funds. I was looking at Dodge and Cox and other names I don't even remember, comparing their holdings etc., and man, compared to Vanguard they had ridiculous fees. Glad I never went down that road. Usually the more complicated something is made, the more traps to fall into.

So a simple 3 fund portfolio is all you really need.
I forget the name, "Coffeehouse Portfolio" or some such name.
Or even just Total Stock Market and Total Bond Market Indexes will do.

To me, the lesson was "you're playing against a stacked deck."
Especially with individual stocks.
And regardless of how good it looks today,
or how good it has looked for the last 100 years,
or how good you think it's going to be tomorrow,
it's all still gambling--just a matter of degrees.
And you never know ANYTHING for sure.

And it doesn't help that the laws, such as bankruptcy,
are set up to their advantage, not yours.

I'm just glad my "experiment" was done with small money.
I'm sure a lot of people lost big money when Citibank and Peabody went to zero.
Or rather, when they "rebooted."

And since the shareholders were just kept in the RAM memory,
with the reboot, "poof," your gone!
While what was once your money, stays safely in the hard drive, for them.
If you think "you're playing against a stacked deck.", does that mean you shouldn't even touch index funds? Because that's just a basket of stocks which, according to you, are all rigged against you.

Your individual stock experiment may have done better than you think. It looks like you may have beaten the market with that 10-bagger MSFT even though two other stocks went to zero and most other stocks were just average. And that's without a clear strategy, or at least you are not explaining your strategy clearly.

I mean I've seen enough people lost money on individual stocks and swear to never touch individual stocks. You sound like one of them. But if you lost money on real estate do you swear to never own real estate? If you start a business and that failed do you swear to never start another business? Or if you lost money on index funds do you swear to never touch index funds? There are people who learn from their mistakes and do consistently well in entrepreneurship. There are also people who consistently make money in real estate and stock investing.

If you don't have a strategy, then the index fund strategy is a pretty good strategy for you. It's probably a good strategy for most people who either couldn't or never bothered to figure out why they lost money. You'll stay invested and earn some average market return. And hopefully you don't sell out at the bottom and swear to never touch it again.

But for many people, they'll gamble on a good opportunity in life. If you get a good risk/reward then gambling is worth it with reasonable risk management. The gamble could be a startup business or some individual stocks. It will highly depend on the skill of the individual investor and very few will be successful, but those who are successful are usually very successful.
I never see it as a one size fits all. I just look at it as what is best for me in my situation, and best suited to my temperament. If others like stocks, that doesn't bother or affect me at all. I've learned they're not for me though, and that's what does matter.

And I would never want to own a restaurant or any other kind of business.
Not because there's anything wrong with it, for certain people it's probably great,
just not "my thing."

Things have worked out very well for me on another road better suited to my character, and although it was never going to get me to where I would one day own a yacht, that's a good thing, because I have no interest in one, and never have.

I can see what lies behind that facade, since I've had enough "nice things" in my life to know that it's never 100% what people expect it to be. So it's not of interest to me, and holds no allure. I'm better designed for a happy simple life, not chasing things to impress anyone or to fell "successful" by whatever other people think that means.

But hey, for any yacht owners, I'm happy for you, enjoy!
We all have different tastes.
Not saying there's anything wrong with yachts.

I don't have any index funds, and am probably 80% bonds, which may not even include the I-Bonds or cash because I don't even bother to figure that out.
All I know is, I'm doing fine.

I have very little in stocks or stock funds.
And I'm not interested in buying anymore at the moment.
Now if a year from now the market was down 50%,
I could consider it, depending on the situation at the time.
If the pandemic had killed off 50% of the world population,
I really don't think I'd be giving investments much of my attention or interest at all. I'd be concerned with more important things, like staying alive.

But if things were as they are today, or better even, then yeah, I could see buying into index funds at 50% discount if that was the situation at the time.
Not because I need to, but why not? Gotta put the money somewhere right?
Who knows, maybe I'd even buy some at 40% discount, or maybe even 30%.
But the good thing is, I don't have any NEED TO,
so really not my problem to worry about until "I'm there."

As for my "experiment" I wasn't complaining about the outcome, and yes I am a bit up I think, but only because I "luckily" bought those shares of Microsoft when I did, even if it was 10 years prematurely with just a modest dividend during that time.

Actually I'm very pleased with the results of that whole experiment, and not in a dollar-wise sense, but because of what I learned about my own temperament, and about stocks.

As a kid I remember the story about The Tortoise and the Hare, and I've always been the "slow and steady wins the race" kind of guy. Just suits my temperament, and has always worked for me in MANY aspects of my life. And never been the kind of guy to try and out-do anyone or actually "win the race," it's just a figure of speech. Trying to out-do others seems to drain away happiness, and to me that's worth a lot more than "beating someone" at something. That's why I always figure to each his own. What's best for me may not be what's best for them.

Oh, and although index funds are stocks, yes, but the total stock market is made up of DIVERSIFIED stocks, so I don't have to babysit them, or even worry about them. Like I said, I'm not looking to buy a yacht.
Modest, SAFE returns, would be fine by me.
:sharebeer
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
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vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: The Dangerous Allure of Individual Stocks

Post by vanbogle59 »

CurlyDave wrote: Mon Jan 17, 2022 1:33 am
vanbogle59 wrote: Sun Jan 16, 2022 10:28 pm
...I agree the market is not zero sum. Trying to beat it (by picking individual stocks) is.
"Zero Sum" is a mathematical term, which is used to describe a situation where all wins by some parties must come from losses by other parties.

If investing in a total stock market index is not zero sum, it is impossible for investing in individual stocks to be zero sum, since TSM is the sum of all individual stocks.

One can certainly be correct in saying that investing in individual stocks is unwise and risky for many of us, but stating that it is zero sum is absolutely untrue.
I think you are making a semantic point, but not a practical one.
The choice isn't buy individual stocks vs don't invest it all. It's buy the haystack or buy individual stocks.
If I can get the average gain by buying the haystack for "free" (very low fees, no effort), why buy individual stocks?

If you think the answer is because you can beat the average, you are trying to win a zero sum game.
Because, for everyone who beats the average, someone else has to be less than average.
CurlyDave
Posts: 3182
Joined: Thu Jul 28, 2016 11:37 am

Re: The Dangerous Allure of Individual Stocks

Post by CurlyDave »

vanbogle59 wrote: Mon Jan 17, 2022 5:37 am
CurlyDave wrote: Mon Jan 17, 2022 1:33 am
vanbogle59 wrote: Sun Jan 16, 2022 10:28 pm
...I agree the market is not zero sum. Trying to beat it (by picking individual stocks) is.
"Zero Sum" is a mathematical term, which is used to describe a situation where all wins by some parties must come from losses by other parties.

If investing in a total stock market index is not zero sum, it is impossible for investing in individual stocks to be zero sum, since TSM is the sum of all individual stocks.

One can certainly be correct in saying that investing in individual stocks is unwise and risky for many of us, but stating that it is zero sum is absolutely untrue.
I think you are making a semantic point, but not a practical one.
The choice isn't buy individual stocks vs don't invest it all. It's buy the haystack or buy individual stocks.
If I can get the average gain by buying the haystack for "free" (very low fees, no effort), why buy individual stocks?

If you think the answer is because you can beat the average, you are trying to win a zero sum game.
Because, for everyone who beats the average, someone else has to be less than average.
If that is how you choose to define a "zero sum game" no one can stop you. It is not the same as the generally recognized mathematical definition.

The primary problem is that using your definition makes relying on the very substantial body of existing mathematical work in analyzing investments very suspect. It is much deeper than a minor semantic issue. If this doesn't bother you, carry on.
Answering a question is easy -- asking the right question is the hard part.
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vanbogle59
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Re: The Dangerous Allure of Individual Stocks

Post by vanbogle59 »

CurlyDave wrote: Mon Jan 17, 2022 12:21 pm
vanbogle59 wrote: Mon Jan 17, 2022 5:37 am
CurlyDave wrote: Mon Jan 17, 2022 1:33 am
vanbogle59 wrote: Sun Jan 16, 2022 10:28 pm
...I agree the market is not zero sum. Trying to beat it (by picking individual stocks) is.
"Zero Sum" is a mathematical term, which is used to describe a situation where all wins by some parties must come from losses by other parties.

If investing in a total stock market index is not zero sum, it is impossible for investing in individual stocks to be zero sum, since TSM is the sum of all individual stocks.

One can certainly be correct in saying that investing in individual stocks is unwise and risky for many of us, but stating that it is zero sum is absolutely untrue.
I think you are making a semantic point, but not a practical one.
The choice isn't buy individual stocks vs don't invest it all. It's buy the haystack or buy individual stocks.
If I can get the average gain by buying the haystack for "free" (very low fees, no effort), why buy individual stocks?

If you think the answer is because you can beat the average, you are trying to win a zero sum game.
Because, for everyone who beats the average, someone else has to be less than average.
If that is how you choose to define a "zero sum game" no one can stop you. It is not the same as the generally recognized mathematical definition.

The primary problem is that using your definition makes relying on the very substantial body of existing mathematical work in analyzing investments very suspect. It is much deeper than a minor semantic issue. If this doesn't bother you, carry on.
Hmmmm
I don't think what I am saying (or maybe, what I am trying to say) is controversial at all.

1) I am NOT saying investing in equities is 0 sum.
2) I am NOT saying buying the haystack is 0 sum.
3) I am saying adopting a strategy to beat the haystack is 0 sum. For everyone that beats the average, someone has to lose to the average.
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Harry Livermore
Posts: 1937
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Re: The Dangerous Allure of Individual Stocks

Post by Harry Livermore »

calmaniac wrote: Fri Jan 07, 2022 4:13 pm
Another "overpayment" is time. Do you really want to spend the time needed to research individual companies and monitor their financial health? When to get in and get out? I would posit that your time is more valuable than that.
I would agree, unless it's an enjoyable practice.
I was in an investment club in the early 1990s and found the collaboration, analysis, and monitoring of our small basket of stocks very enjoyable.
Nowadays, without the camaraderie of the group, it's more of a chore to follow the half-dozen individual companies I still have investments in.
Cheers
chris319
Posts: 1659
Joined: Thu Jan 28, 2021 5:04 pm

Re: The Dangerous Allure of Individual Stocks

Post by chris319 »

Lesson: Always sell enough exercised options right away to ensure you have cash to pay the income tax.
Lesson 2: Diversify so you aren't relying on the same company for income, investment equity, and retirement equity.
Lesson 3: Stay the h*ll away from options. They are perishable, i.e. they expire after a certain period, so you have to be correct about the future price move and the timing of that move. My crystal ball isn't that good so I stay away.
I have a few losers as well but some of them are just still waiting to move ahead like Lithium mining companies
I found a lithium ETF (LIT). My position is down 11.4% and I'm waiting for it to move up. Easier than buying lithium-mining stocks.
Financial decisions based on emotion often turn out to be bad decisions.
CurlyDave
Posts: 3182
Joined: Thu Jul 28, 2016 11:37 am

Re: The Dangerous Allure of Individual Stocks

Post by CurlyDave »

vanbogle59 wrote: Mon Jan 17, 2022 12:56 pm
...Hmmmm
I don't think what I am saying (or maybe, what I am trying to say) is controversial at all.

1) I am NOT saying investing in equities is 0 sum.
2) I am NOT saying buying the haystack is 0 sum.
3) I am saying adopting a strategy to beat the haystack is 0 sum. For everyone that beats the average, someone has to lose to the average.
1. What you are saying is not controversial, and I am not certain what the correct mathematical term for it is, and it is a useful concept, BUT it does not mean that attempting to "beat the haystack" is a zero sum game.

2. Imagine a group of 10 investors. Suppose 9 of them beat the market average by 1% each, and the last one is very unlucky and is 9% under the market average for whatever time period we are considering. The concept that "For everyone that beats the average, someone has to lose to the average" does not hold true in this simple example, but I understand the point you are trying to make. The correct way to say it is that the sum of all the above average returns will be equal to the sum of all the below average returns, which is obviously correct from the definition of a simple average.
Answering a question is easy -- asking the right question is the hard part.
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vanbogle59
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Re: The Dangerous Allure of Individual Stocks

Post by vanbogle59 »

CurlyDave wrote: Mon Jan 17, 2022 9:20 pm
vanbogle59 wrote: Mon Jan 17, 2022 12:56 pm
...Hmmmm
I don't think what I am saying (or maybe, what I am trying to say) is controversial at all.

1) I am NOT saying investing in equities is 0 sum.
2) I am NOT saying buying the haystack is 0 sum.
3) I am saying adopting a strategy to beat the haystack is 0 sum. For everyone that beats the average, someone has to lose to the average.
1. What you are saying is not controversial, and I am not certain what the correct mathematical term for it is, and it is a useful concept, BUT it does not mean that attempting to "beat the haystack" is a zero sum game.

2. Imagine a group of 10 investors. Suppose 9 of them beat the market average by 1% each, and the last one is very unlucky and is 9% under the market average for whatever time period we are considering. The concept that "For everyone that beats the average, someone has to lose to the average" does not hold true in this simple example, but I understand the point you are trying to make. The correct way to say it is that the sum of all the above average returns will be equal to the sum of all the below average returns, which is obviously correct from the definition of a simple average.
I think we agree, and I don't really care about the vocabulary.
:sharebeer
vtsnowdin
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Re: The Dangerous Allure of Individual Stocks

Post by vtsnowdin »

chris319 wrote: Mon Jan 17, 2022 4:24 pm vtsnowdin"
I have a few losers as well but some of them are just still waiting to move ahead like Lithium mining companies
I found a lithium ETF (LIT). My position is down 11.4% and I'm waiting for it to move up. Easier than buying lithium-mining stocks.
I don't buy ETFs with small segment focus. To me whole market, S&P 500 or larger, at lowest cost or individual stocks at Zero cost are the way to go and I stay away from the middle higher cost ETFs. My personnel comfort level. :beer
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Re: The Dangerous Allure of Individual Stocks

Post by stocknoob4111 »

If I had bought $50,000 of AAPL in 2007, knowing that the iPhone was going to be such a hit, my current balance would've been $3.42 Million, that is simply staggering to imagine :shock: A friend of mine bought $10K several years ago, not quite in '07 but he has still made out like a bandit relative to his investment.
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vanbogle59
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Re: The Dangerous Allure of Individual Stocks

Post by vanbogle59 »

stocknoob4111 wrote: Wed Jan 19, 2022 2:46 pm If I had bought $50,000 of AAPL in 2007, knowing that the iPhone was going to be such a hit, my current balance would've been $3.42 Million, that is simply staggering to imagine :shock: A friend of mine bought $10K several years ago, not quite in '07 but he has still made out like a bandit relative to his investment.
I have a little bit of some coins that make that regret seem trivial. :beer
WapelloHawk
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Re: The Dangerous Allure of Individual Stocks

Post by WapelloHawk »

In 1998 and 1999, I was a stock picking genius. Peter Lynch and Warren Buffett wished they had my returns. Then 2000 and 2001 came along. Rode MCI Worldcom all the way to zero, among other less than optimal investments. Discovered indexing in 2003, haven't bought a stock since, and have never looked back. A lot less stressful.
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Re: The Dangerous Allure of Individual Stocks

Post by stocknoob4111 »

NFLX down 20.5% after hours :shock: Easy come, easy go I guess....

apparently the CEO admitted that growth is slowing drastically due to other streaming services...
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Patzer
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Re: The Dangerous Allure of Individual Stocks

Post by Patzer »

I am now completely indexed, with the exception of 5 shares of BRK-B that I will hold forever, which make up a fraction of one percent of my holdings. I really look up to Buffett and appreciate everything I learned from him, and I have an emotional connection to these shares.

This is not a position I plan to trade in and out of and it is so small that it impacts nothing. Additionally, I am up 100% in it and it's in a brokerage account, so I don't want to pay taxes on that.

I used the big dip we had in Feb/March to sell my other individual stocks that had gains and offset them with tax loss harvesting in my indexes. :)
secondopinion
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Re: The Dangerous Allure of Individual Stocks

Post by secondopinion »

chris319 wrote: Mon Jan 17, 2022 4:24 pm
Lesson: Always sell enough exercised options right away to ensure you have cash to pay the income tax.
Lesson 2: Diversify so you aren't relying on the same company for income, investment equity, and retirement equity.
Lesson 3: Stay the h*ll away from options. They are perishable, i.e. they expire after a certain period, so you have to be correct about the future price move and the timing of that move. My crystal ball isn't that good so I stay away.
I agree that options are not the best means to surface money for income tax, since anyone can reserve dividends or interest income for that; nearly everyone surfaces enough payout to pay the taxes.

I do think a lot of people here are misunderstanding the long-term nature of options. I use LEAP options a bit for SPY, and it has nothing to do with guessing; I seek to control the risk skew of my returns. Each person has different goals, and different goals are actually optimized by using the right kinds of option strategies.

Insurance is meant to control tail risk; are we complaining that insurance is gambling yet it is clearly zero sum by contract (while even probably not even in our favor)? No. Why? Because the tail risk is devastating to those with little net worth, the lack of taking tail risk would save them from financial ruin; therefore, it is optimal for them to buy the insurance to meet their goals (at the expense of losing some of their net worth if it does not happen).

Now, options are the same way if used properly. It is zero sum and some people say that is gambling, but the truth is that why should that matter if it is zero sum? If they allow for one to meet their goals more efficiently, then they provide exactly what is desired.

I do think even active investing can be misunderstood. If one is taking below average risks in stocks (which is entirely possible to achieve), it should imply that the expected return should be lower than the market portfolio; otherwise, it is a risk-adjusted free lunch. As a result, those who choose the portfolio excluding those stocks should be making expected returns above the market portfolio at the expense of taking risk above market risk. It is true that the idiosyncratic risk exists and is uncompensated, but enough stocks does remove nearly all of that risk. It is zero-sum with respect to the market portfolio to deviate from the market portfolio, but that does not mean it is pointless to deviate; the deviation can play a role in the portfolio to better match goals.

My deviations from the Boglehead philosophies are that options have use in an investor's portfolio, that the total bond market is flawed to the needs of quite a few investors, and that do-it-yourself active investing can be worth it if you have the time and well-defined goals. I do agree that active funds cost too much and will deviate from desired objectives all the time, that those without a clue should stay with the market portfolio, that guessing and market timing is a negative for risk-adjusted returns because every point of trading introduces an uncompensated risk, and that no one can beat the market adjusting for risk because it is zero sum with respect to the market portfolio.

I am radical in my views, but I deserve to be here rather than on those group where stock picking for the speculative risk is all they care about; this because I acknowledge the true nature of the market.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Kenster1
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Re: The Dangerous Allure of Individual Stocks

Post by Kenster1 »

This is a good topic.

I have about 20% in individual stocks but I have learned to trim down - I plan to do so 1-step at a time starting with trimming down to 10% and part of that can be accelerated by adding new money to my ETF holdings.

A sampling of my individual stocks include Amazon, Microsoft, Apple, Visa, Mastercard, Berkshire Hathaway, Lowes, Home Depot, Broadcom, Realty Income + few others but it's a short list in total.

It has worked out well (part luck?) by focusing on quality, wide-moat firms but you get sucked in thinking too much about your individual investments and what's happening to the business. Take Lowes and Home Depot for example --- I hear mixed messages these days that Home DIY and Contractor business will soften but it'll be ok and healthy whereas other analysis are not so keen and indicating that these 2 are going to take a hit because valuations are already fully valued, maybe even a bit lofty and business will soften this year. Slight bad news can wreak havoc on a stock short-term. But both are wonderful dividend growth companies - in fact, Lowe's has grown dividends annually for over 50 years. So there's a side of me that now wants to dump it, not worry about the business and move the money to my ETFs.

Broadcom (AVGO) is a wonderful dividend payer and grower - 5 yr dividend growth rate of 28% - I picked this one up last year after hearing they were buying VMware and added throughout 2022 while it was dipping down - but their dividend numbers looked really attractive.

Other individual stocks such as Amazon, Apple, Microsoft, Berkshire Hathaway, Visa, Mastercard are much longer term holdings for me - and the return have been great but again the whims of the market/business news can affect me even though you go in thinking of a long-term investment.

Yeah I don't plan on adding more to these individual stocks and I'm not sure if I'll ever get rid of individual stocks entirely --- I have too much of an itch to invest in a business where I think there's a great long-term opportunity and I try to stick with high quality, wide-moat businesses. I chose to invest in both Visa and Mastercard many years ago because both dominate their market and I couldn't decide which one to choose (similar to why I picked both HD and Lowes) -- turns out both have knocked it out of the park. But I plan on the individual stock portion of my portfolio to dwindle smaller and smaller --- I'll get it down to 10% which I think is comfortably small enough % for me - and who knows maybe even down to 5% after that.

But yes indeed, individual stock investing is hard because once you start - you can become quite consumed thinking about your individual stocks and how they're affected by inflation, layoffs, recession, business competition/product & partnership failures, etc. --- one quarter you'll hear an Analyst say to dump it because it's overvalued and then next quarter the Analysts are saying it's a wonderful buy. So it plays around with your mind. Then sometimes you think - oh should I sell now because I think the stock might be fully valued and Company X is doing well and a good opportunity to swap out to.

I certainly understand that huge challenge (can be a psychological mind game) --- so that's why I'm going thru a glidepath process of dwindling down my individual stocks so that will end up only 5-10% of my portfolio and I won't sweat or lose sleep thinking about my holdings.
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
Stryker
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Re: The Dangerous Allure of Individual Stocks

Post by Stryker »

If there's a dangerous allure in owning shares in individual stocks I haven't noticed. The first taxable portfolio of individual equities was sold in the late 90's to put a substantial down payment on the house we still live in. Once the mortgage was paid off within three years, a new taxable portfolio of individual stocks got started in 2003 and I haven't looked back since. Over time our assets grow even in retirement. More importantly our income gets larger and as long as it outperforms inflation that's all I care about. The income grows faster than any wage increases I got when I was in the work force. The only thing I do is to to see whether the dividend in each company has increased and if so by what percentage. A bit of maintenance every so often, not much, and put any cash from savings and dividends into adding to or else buying another company in whichever sector is lagging in our own portfolio.

The passive global index ETF's that we own in the tax free and tax deferred accounts are fine for diversifying outside of Canada and for sectors we don't own like healthcare and tech, but that's about it.
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Re: The Dangerous Allure of Individual Stocks

Post by grok87 »

vanbogle59 wrote: Sun Jan 16, 2022 10:28 pm
CurlyDave wrote: Sun Jan 16, 2022 9:19 pm
vanbogle59 wrote: Sun Jan 16, 2022 9:10 am
nedsaid wrote: Sat Jan 15, 2022 9:30 pm There actually are people out there who are good stock pickers.
I agree.
I also think there are people out there who are good poker players.
Both games are zero sum. And I have no special skills in either domain.
So, I don't play.

If you don't know who the sucker is in the zero sum game....
Weil, you know the rest.
:sharebeer
Poker is a zero sum game. The stock market in general, and individual stocks, are not a zero sum game. Value is constantly being created.
I agree the market is not zero sum. Trying to beat it (by picking individual stocks) is.
to use wall- street speak (and i mean that pejoratively) the "alpha" is zero-sum
RIP Mr. Bogle.
secondopinion
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Re: The Dangerous Allure of Individual Stocks

Post by secondopinion »

grok87 wrote: Wed Feb 15, 2023 4:25 pm
vanbogle59 wrote: Sun Jan 16, 2022 10:28 pm
CurlyDave wrote: Sun Jan 16, 2022 9:19 pm
vanbogle59 wrote: Sun Jan 16, 2022 9:10 am
nedsaid wrote: Sat Jan 15, 2022 9:30 pm There actually are people out there who are good stock pickers.
I agree.
I also think there are people out there who are good poker players.
Both games are zero sum. And I have no special skills in either domain.
So, I don't play.

If you don't know who the sucker is in the zero sum game....
Weil, you know the rest.
:sharebeer
Poker is a zero sum game. The stock market in general, and individual stocks, are not a zero sum game. Value is constantly being created.
I agree the market is not zero sum. Trying to beat it (by picking individual stocks) is.
to use wall- street speak (and i mean that pejoratively) the "alpha" is zero-sum
It is zero-sum according to the market index. But if the market index is not what meets one's objectives in the best manner, why should they care if there is alpha against it or not? Their goal should be something besides beating the market (that is, whatever we define as "the market", since we exclude some of what is publicly tradable already).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Logan Roy
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Re: The Dangerous Allure of Individual Stocks

Post by Logan Roy »

Stryker wrote: Wed Feb 15, 2023 4:04 pm If there's a dangerous allure in owning shares in individual stocks I haven't noticed. The first taxable portfolio of individual equities was sold in the late 90's to put a substantial down payment on the house we still live in. Once the mortgage was paid off within three years, a new taxable portfolio of individual stocks got started in 2003 and I haven't looked back since. Over time our assets grow even in retirement. More importantly our income gets larger and as long as it outperforms inflation that's all I care about. The income grows faster than any wage increases I got when I was in the work force. The only thing I do is to to see whether the dividend in each company has increased and if so by what percentage. A bit of maintenance every so often, not much, and put any cash from savings and dividends into adding to or else buying another company in whichever sector is lagging in our own portfolio.

The passive global index ETF's that we own in the tax free and tax deferred accounts are fine for diversifying outside of Canada and for sectors we don't own like healthcare and tech, but that's about it.
Yes. I think things go a bit too far here sometimes. I don't think there's any great danger in owning pieces of large, successful businesses. Many of us own our own businesses, and that's what concentrated risk feels like.

Evidently some people make a complete mess of things – buying and selling like startled animals, constantly at the whim of their emotions, trying to beat the market.. I always say the under-appreciated side of active investing is that we all have different investing aims.. I'm happy own a bit more of businesses I consider strong; businesses I use; businesses that pay steady dividends or have high earnings stability. It's also a great way to stay engaged with the world. It's not eating at McDonalds that keeps Buffett so sharp.
strummer6969
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Re: The Dangerous Allure of Individual Stocks

Post by strummer6969 »

I don't think buying high quality companies at a good price is too risky. It gets risky when you're buying or selling emotionally. Like getting FOMO when a stock has had a 50%+ return in a few months. Or selling on bad news.

In any case, if I were to go down that route, I'd be more comfortable buying an actively managed fund than picking stocks myself. I don't feel like going through company financials, etc.
Dregob
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Re: The Dangerous Allure of Individual Stocks

Post by Dregob »

Patzer wrote: Fri Jan 07, 2022 2:45 pm 95% of my stocks are indexed and I have fun picking undervalued companies with the rest.
I and many others have stated that having a little bit of money in individual stocks is okay, but I think there is a larger risk to having them, especially if you do well.

My individual picks have outperformed the market by 11% so far in 2022.
It's temping to feel smug right now, and it's easy to forget the years where I underperformed the market when things are going well.
There is a little voice that says, "Maybe I do know more than the market".. "Maybe I should index less".
The dangerous allure of individual stocks is that when they do well, they are very good at feeding your ego and temping you to become a worse investor.

The reality is that it's easier to make data driven decisions when I am trading 0.5-1% of my portfolio in each stock, but I would probably not be able to avoid typical behavioral mistakes if I was trading larger positions. Even if I could, it would not be worth the risk, stress, and time.

Index investing will deliver my retirement goals, but it's almost too easy.
So, even though I don't need to outperform the market, I and many other very smart people can't help but try our hand at beating lots of other very smart people.

I won't listen to my ego and I will stick with indexing, and I want to reduce the biggest risk to my investment success, myself.

I am slowly winding down my individual stocks as they reach the end point of the various theses that I am operating on.
I ended 2020 with ~90% indexed.
I ended 2021 with ~95% indexed.
I hope to end 2022 with 97-98% indexed.

Update 4/6/2022: I am now completely indexed, with the exception of 5 shares of BRK-B that I will hold forever, which make up a fraction of a percent of my holdings. I really look up to Buffett and appreciate everything I learned from him.
My individual stock Waterloo: inherited PG&E and held it way too long and watched it drop and drop and drop. Sold at a big loss from the inherited basis.
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Re: The Dangerous Allure of Individual Stocks

Post by the_wiki »

strummer6969 wrote: Wed Feb 15, 2023 5:38 pm I don't think buying high quality companies at a good price is too risky.
It seems like that should be obvious. But think back 20 or 30 years at the "high quality" companies. What would you have picked? How did they do compared to the broad index?
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Re: The Dangerous Allure of Individual Stocks

Post by strummer6969 »

the_wiki wrote: Wed Feb 15, 2023 5:48 pm
strummer6969 wrote: Wed Feb 15, 2023 5:38 pm I don't think buying high quality companies at a good price is too risky.
It seems like that should be obvious. But think back 20 or 30 years at the "high quality" companies. What would you have picked? How did they do compared to the broad index?
I was thinking a small portion of one's portfolio. It would have to be regularly managed, not a buy and hold forever portfolio, and would require at least 20-30 stocks. I do not have the skill set for it but some do.

On indexing - we have had tailwinds where stocks have broadly gone up the past few decades - low interest rates, low bond yields, low inflation, and lots of fiscal spending. I don't know if index funds will perform as well as they have for the intermediate future. People will take risk and there will be winners and losers. The index will very slowly creep up. Or we can keep seeing double digit gains that we had been used to for a while. Who knows.

I plan to continue indexing but some people have taken bold, concentrated risks and it has paid off. I can't say my method is better. I hope it is.
Last edited by strummer6969 on Wed Feb 15, 2023 6:34 pm, edited 2 times in total.
secondopinion
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Re: The Dangerous Allure of Individual Stocks

Post by secondopinion »

the_wiki wrote: Wed Feb 15, 2023 5:48 pm
strummer6969 wrote: Wed Feb 15, 2023 5:38 pm I don't think buying high quality companies at a good price is too risky.
It seems like that should be obvious. But think back 20 or 30 years at the "high quality" companies. What would you have picked? How did they do compared to the broad index?
If one is looking for less volatile higher quality stocks, they can find them analytically. It is not as hard to find what one is looking for; the question is whether one will obtain superior returns to the market index. But in some regards, those who are merely buying the less volatile higher quality stocks are probably not 100% interested as to what the market index return is. They often trade off upside for some downside protection.

There is merit in this approach; however, hardly any company will stay in this category for a very long time (as to be that way for 30+ years).

Of course, stock picking is normally unadvisable for most investors.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: The Dangerous Allure of Individual Stocks

Post by Logan Roy »

strummer6969 wrote: Wed Feb 15, 2023 6:06 pm
the_wiki wrote: Wed Feb 15, 2023 5:48 pm
strummer6969 wrote: Wed Feb 15, 2023 5:38 pm I don't think buying high quality companies at a good price is too risky.
It seems like that should be obvious. But think back 20 or 30 years at the "high quality" companies. What would you have picked? How did they do compared to the broad index?
It would have to be regularly managed, not a buy and hold portfolio, and would require at least 20-30 stocks. I do not have the skill set for it but some do.

On indexing - we have had tailwinds where stocks has broadly gone up the past few decades - low interest rates, low bond yields, low inflation, and lots of fiscal spending. I don't know if index funds will perform as well as they have. People will take risk and there will be winners and losers. The index will very slowly creep up. Or we can keep seeing double digit gains that we had been used to for a while. Who knows.

I plan to continue indexing but some people have taken bold, concentrated risks and it has paid off. I can't say my method is better. I hope it is.
I think active funds can be fine – so long as they're inexpensive, sensibly run, etc. it's very unlikely to make a night and day difference.

However, I think if one already has a lot of beta (indexing), you don't need 20-30 stocks.. For me, it's a much better excuse to have 5 or 6 individual stocks.. This is about the number of businesses an individual investor can reasonably keep up with.. It's concentrated enough that it *could* contribute more meaningfully to returns.. It's the number of positions Buffett advises – I think 20-30 meaningful positions suggests a fair bit of guesswork, or spray and pray. Most active funds hold far too many positions, because retail investors have so little tolerance for deviating from the market, but they'll pay for the market (plus the chance of a bit more).

I'd also make these buy-and-hold positions, as much as possible. Businesses you want to own more of.. On 20-30 years ago: mostly the same I have now: JNJ, Unilever, Microsoft, BRK..
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Re: The Dangerous Allure of Individual Stocks

Post by strummer6969 »

Logan Roy wrote: Wed Feb 15, 2023 6:34 pm
strummer6969 wrote: Wed Feb 15, 2023 6:06 pm
the_wiki wrote: Wed Feb 15, 2023 5:48 pm
strummer6969 wrote: Wed Feb 15, 2023 5:38 pm I don't think buying high quality companies at a good price is too risky.
It seems like that should be obvious. But think back 20 or 30 years at the "high quality" companies. What would you have picked? How did they do compared to the broad index?
It would have to be regularly managed, not a buy and hold portfolio, and would require at least 20-30 stocks. I do not have the skill set for it but some do.

On indexing - we have had tailwinds where stocks has broadly gone up the past few decades - low interest rates, low bond yields, low inflation, and lots of fiscal spending. I don't know if index funds will perform as well as they have. People will take risk and there will be winners and losers. The index will very slowly creep up. Or we can keep seeing double digit gains that we had been used to for a while. Who knows.

I plan to continue indexing but some people have taken bold, concentrated risks and it has paid off. I can't say my method is better. I hope it is.
I think active funds can be fine – so long as they're inexpensive, sensibly run, etc. it's very unlikely to make a night and day difference.

However, I think if one already has a lot of beta (indexing), you don't need 20-30 stocks.. For me, it's a much better excuse to have 5 or 6 individual stocks.. This is about the number of businesses an individual investor can reasonably keep up with.. It's concentrated enough that it *could* contribute more meaningfully to returns.. It's the number of positions Buffett advises – I think 20-30 meaningful positions suggests a fair bit of guesswork, or spray and pray. Most active funds hold far too many positions, because retail investors have so little tolerance for deviating from the market, but they'll pay for the market (plus the chance of a bit more).

I'd also make these buy-and-hold positions, as much as possible. Businesses you want to own more of.. On 20-30 years ago: mostly the same I have now: JNJ, Unilever, Microsoft, BRK..
What percentage of your portfolio is in individual stocks?

I'm working my way through The Intelligent Investor. I may try my hand at picking a few stocks. I'm fully expecting to not beat the index but at least I can say I gave it a shot and have no regrets about it. It would be a small part of my portfolio.
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Re: The Dangerous Allure of Individual Stocks

Post by Parkinglotracer »

Better investing helps investment clubs analyze stocks and achieve success

https://www.betterinvesting.org/


Great non profit organization dedicated to educating investors
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HomerJ
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Re: The Dangerous Allure of Individual Stocks

Post by HomerJ »

strummer6969 wrote: Wed Feb 15, 2023 6:44 pm I'm working my way through The Intelligent Investor. I may try my hand at picking a few stocks. I'm fully expecting to not beat the index but at least I can say I gave it a shot and have no regrets about it. It would be a small part of my portfolio.
If you need to burn your hand on the stove to learn the lesson, go ahead and burn your hand.

I just hope you don't get lucky, and make some money.

Because then you'll think you're good at it, and invest a large part of your portfolio, and then you might actually lose something significant.

Look, I get it.

We're all the same.

I had to burn my hand on the stove. I didn't listen to the old farts in the room, and you won't listen to the old farts in the room.

So go ahead and try... Maybe you'll actually be good at picking stocks, and not just lucky. Some people (a very few people) are indeed good at it.

But be careful what you risk. Don't assume that you are good at it if you get good results quickly.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
strummer6969
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Re: The Dangerous Allure of Individual Stocks

Post by strummer6969 »

HomerJ wrote: Wed Feb 15, 2023 10:14 pm
strummer6969 wrote: Wed Feb 15, 2023 6:44 pm I'm working my way through The Intelligent Investor. I may try my hand at picking a few stocks. I'm fully expecting to not beat the index but at least I can say I gave it a shot and have no regrets about it. It would be a small part of my portfolio.
If you need to burn your hand on the stove to learn the lesson, go ahead and burn your hand.

I just hope you don't get lucky, and make some money.

Because then you'll think you're good at it, and invest a large part of your portfolio, and then you might actually lose something significant.

Look, I get it.

We're all the same.

I had to burn my hand on the stove. I didn't listen to the old farts in the room, and you won't listen to the old farts in the room.

So go ahead and try... Maybe you'll actually be good at picking stocks, and not just lucky. Some people (a very few people) are indeed good at it.

But be careful what you risk. Don't assume that you are good at it if you get good results quickly.
I've been an indexer for over a decade. I've already been burnt during the COVID retail trading mania. I was investing on pure emotion (FOMO, panic selling, etc). It was a small part of my portfolio. I haven't ventured back into stocks. But man FOMO is one powerful emotion. I think I need to just chill out and take what the market gives me. Over time I know I'm going to get clobbered trading stocks. Thanks for your post. :beer
Stryker
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Re: The Dangerous Allure of Individual Stocks

Post by Stryker »

Logan Roy wrote: Wed Feb 15, 2023 5:18 pm
Stryker wrote: Wed Feb 15, 2023 4:04 pm If there's a dangerous allure in owning shares in individual stocks I haven't noticed. The first taxable portfolio of individual equities was sold in the late 90's to put a substantial down payment on the house we still live in. Once the mortgage was paid off within three years, a new taxable portfolio of individual stocks got started in 2003 and I haven't looked back since. Over time our assets grow even in retirement. More importantly our income gets larger and as long as it outperforms inflation that's all I care about. The income grows faster than any wage increases I got when I was in the work force. The only thing I do is to to see whether the dividend in each company has increased and if so by what percentage. A bit of maintenance every so often, not much, and put any cash from savings and dividends into adding to or else buying another company in whichever sector is lagging in our own portfolio.

The passive global index ETF's that we own in the tax free and tax deferred accounts are fine for diversifying outside of Canada and for sectors we don't own like healthcare and tech, but that's about it.
Yes. I think things go a bit too far here sometimes. I don't think there's any great danger in owning pieces of large, successful businesses. Many of us own our own businesses, and that's what concentrated risk feels like.

Evidently some people make a complete mess of things – buying and selling like startled animals, constantly at the whim of their emotions, trying to beat the market.. I always say the under-appreciated side of active investing is that we all have different investing aims.. I'm happy own a bit more of businesses I consider strong; businesses I use; businesses that pay steady dividends or have high earnings stability. It's also a great way to stay engaged with the world. It's not eating at McDonalds that keeps Buffett so sharp.
Buffett can be helpful at times, but he doesn't always know it. I was already adding to pipelines in early 2020 and then when I heard in July that Buffett was buying into Dominion Energy, I added even more pipelines that year. None of the companies will make me rich but with dividend yields at that time of around 10%, I'm not complaining. Dividend yields are now back down to a more normal 5 to 6 %. Still holding.

Of course I'd be lying if every company went according to plan. Another pipeline I started buying in 2015, got whacked when the company found it was overstretched financially after the pandemic first started in early 2020 and cut the dividend. I lost near half of the money I'd put into that one.
grok87
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Re: The Dangerous Allure of Individual Stocks

Post by grok87 »

the_wiki wrote: Wed Feb 15, 2023 5:48 pm
strummer6969 wrote: Wed Feb 15, 2023 5:38 pm I don't think buying high quality companies at a good price is too risky.
It seems like that should be obvious. But think back 20 or 30 years at the "high quality" companies. What would you have picked? How did they do compared to the broad index?
agree
RIP Mr. Bogle.
Logan Roy
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Re: The Dangerous Allure of Individual Stocks

Post by Logan Roy »

strummer6969 wrote: Wed Feb 15, 2023 6:44 pm
Logan Roy wrote: Wed Feb 15, 2023 6:34 pm
strummer6969 wrote: Wed Feb 15, 2023 6:06 pm
the_wiki wrote: Wed Feb 15, 2023 5:48 pm
strummer6969 wrote: Wed Feb 15, 2023 5:38 pm I don't think buying high quality companies at a good price is too risky.
It seems like that should be obvious. But think back 20 or 30 years at the "high quality" companies. What would you have picked? How did they do compared to the broad index?
It would have to be regularly managed, not a buy and hold portfolio, and would require at least 20-30 stocks. I do not have the skill set for it but some do.

On indexing - we have had tailwinds where stocks has broadly gone up the past few decades - low interest rates, low bond yields, low inflation, and lots of fiscal spending. I don't know if index funds will perform as well as they have. People will take risk and there will be winners and losers. The index will very slowly creep up. Or we can keep seeing double digit gains that we had been used to for a while. Who knows.

I plan to continue indexing but some people have taken bold, concentrated risks and it has paid off. I can't say my method is better. I hope it is.
I think active funds can be fine – so long as they're inexpensive, sensibly run, etc. it's very unlikely to make a night and day difference.

However, I think if one already has a lot of beta (indexing), you don't need 20-30 stocks.. For me, it's a much better excuse to have 5 or 6 individual stocks.. This is about the number of businesses an individual investor can reasonably keep up with.. It's concentrated enough that it *could* contribute more meaningfully to returns.. It's the number of positions Buffett advises – I think 20-30 meaningful positions suggests a fair bit of guesswork, or spray and pray. Most active funds hold far too many positions, because retail investors have so little tolerance for deviating from the market, but they'll pay for the market (plus the chance of a bit more).

I'd also make these buy-and-hold positions, as much as possible. Businesses you want to own more of.. On 20-30 years ago: mostly the same I have now: JNJ, Unilever, Microsoft, BRK..
What percentage of your portfolio is in individual stocks?

I'm working my way through The Intelligent Investor. I may try my hand at picking a few stocks. I'm fully expecting to not beat the index but at least I can say I gave it a shot and have no regrets about it. It would be a small part of my portfolio.
Excluding Investment Trusts, it would only be at most 5%.. That could grow.. My perspective on individual stocks is somewhat like Warren Buffett's. I'd recommend the book: The New Buffettology.. So my philosophy would be:

– About 50% of individual stocks will underperform T-bills. About 90% will probably underperform the market. This is not a bad thing. Forget all about trading and gambling on risky sectors and early growth businesses, and just focus on buying great, big, obvious businesses, that have long-term competitive advantages, when they're available on lower prices. And one of the only reasons I ever wind up buying individual stocks is because opportunities to buy them at relatively low prices do tend to come up periodically.

So I just ran those stocks I mentioned through PV – because they sound like very boring, safe, very large names – and they're the same businesses I'm buying this year, as I'd have been buying in 2003.. I wish I could include Apple, but that's a more recent purchase. In fact I think I started buying Apple around the same time as Buffett. I never bother with metrics or accounts. Market efficiency does all that work for you. I'd limit myself to 6 stocks – that way, it forces you to think about each business you hold. I have a very small recent position in Alibaba too, which is much more speculative. But those are my six at the moment, and I'd hope they'd be the same in 20 years. Buffett has a great line that you should never buy a single share in a business you wouldn't want to own entirely. I'd almost say the perspective is less about finding winners than it is avoiding the 50-90% of losers. So I don't need one big winner, I can rebalance, I just need to find good businesses, and add to them on good prices. And aim to own the whole business eventually.

Image

JNJ, UL, MSFT, BRK.A

https://www.portfoliovisualizer.com/bac ... mbol5=AAPL
Logan Roy
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Re: The Dangerous Allure of Individual Stocks

Post by Logan Roy »

Stryker wrote: Thu Feb 16, 2023 5:12 am
Logan Roy wrote: Wed Feb 15, 2023 5:18 pm
Stryker wrote: Wed Feb 15, 2023 4:04 pm If there's a dangerous allure in owning shares in individual stocks I haven't noticed. The first taxable portfolio of individual equities was sold in the late 90's to put a substantial down payment on the house we still live in. Once the mortgage was paid off within three years, a new taxable portfolio of individual stocks got started in 2003 and I haven't looked back since. Over time our assets grow even in retirement. More importantly our income gets larger and as long as it outperforms inflation that's all I care about. The income grows faster than any wage increases I got when I was in the work force. The only thing I do is to to see whether the dividend in each company has increased and if so by what percentage. A bit of maintenance every so often, not much, and put any cash from savings and dividends into adding to or else buying another company in whichever sector is lagging in our own portfolio.

The passive global index ETF's that we own in the tax free and tax deferred accounts are fine for diversifying outside of Canada and for sectors we don't own like healthcare and tech, but that's about it.
Yes. I think things go a bit too far here sometimes. I don't think there's any great danger in owning pieces of large, successful businesses. Many of us own our own businesses, and that's what concentrated risk feels like.

Evidently some people make a complete mess of things – buying and selling like startled animals, constantly at the whim of their emotions, trying to beat the market.. I always say the under-appreciated side of active investing is that we all have different investing aims.. I'm happy own a bit more of businesses I consider strong; businesses I use; businesses that pay steady dividends or have high earnings stability. It's also a great way to stay engaged with the world. It's not eating at McDonalds that keeps Buffett so sharp.
Buffett can be helpful at times, but he doesn't always know it. I was already adding to pipelines in early 2020 and then when I heard in July that Buffett was buying into Dominion Energy, I added even more pipelines that year. None of the companies will make me rich but with dividend yields at that time of around 10%, I'm not complaining. Dividend yields are now back down to a more normal 5 to 6 %. Still holding.

Of course I'd be lying if every company went according to plan. Another pipeline I started buying in 2015, got whacked when the company found it was overstretched financially after the pandemic first started in early 2020 and cut the dividend. I lost near half of the money I'd put into that one.
Well my perspective with very cyclical stocks is these are usually businesses to rent, rather than businesses to own.. So in the past, when I've bought things like Barrick Gold, or Russian oil stocks, or Saudi banks, it's been because of a catalyst – like rising commodity prices – and I'll put a Stop Loss on them, and manually nudge it up (a manual floating Stop).. So I'd aim never to sell, but rather to let the trend run, and let the Stop Loss take me out at 5-10% below the peak.

More recently, I bought Invesco Energy S&P US Select Sector ETF as a play on energy prices and an inflation hedge, with an aim to hold onto it and rebalance against a similarly large holding in gold. And this has worked well so far. I think I'd usually look to buy the sector, rather than the stock. I can't tell what a good price for Exxon or Dominion would be.
Stryker
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Re: The Dangerous Allure of Individual Stocks

Post by Stryker »

Logan Roy wrote: Thu Feb 16, 2023 7:03 am
Stryker wrote: Thu Feb 16, 2023 5:12 am
Logan Roy wrote: Wed Feb 15, 2023 5:18 pm
Stryker wrote: Wed Feb 15, 2023 4:04 pm If there's a dangerous allure in owning shares in individual stocks I haven't noticed. The first taxable portfolio of individual equities was sold in the late 90's to put a substantial down payment on the house we still live in. Once the mortgage was paid off within three years, a new taxable portfolio of individual stocks got started in 2003 and I haven't looked back since. Over time our assets grow even in retirement. More importantly our income gets larger and as long as it outperforms inflation that's all I care about. The income grows faster than any wage increases I got when I was in the work force. The only thing I do is to to see whether the dividend in each company has increased and if so by what percentage. A bit of maintenance every so often, not much, and put any cash from savings and dividends into adding to or else buying another company in whichever sector is lagging in our own portfolio.

The passive global index ETF's that we own in the tax free and tax deferred accounts are fine for diversifying outside of Canada and for sectors we don't own like healthcare and tech, but that's about it.
Yes. I think things go a bit too far here sometimes. I don't think there's any great danger in owning pieces of large, successful businesses. Many of us own our own businesses, and that's what concentrated risk feels like.

Evidently some people make a complete mess of things – buying and selling like startled animals, constantly at the whim of their emotions, trying to beat the market.. I always say the under-appreciated side of active investing is that we all have different investing aims.. I'm happy own a bit more of businesses I consider strong; businesses I use; businesses that pay steady dividends or have high earnings stability. It's also a great way to stay engaged with the world. It's not eating at McDonalds that keeps Buffett so sharp.
Buffett can be helpful at times, but he doesn't always know it. I was already adding to pipelines in early 2020 and then when I heard in July that Buffett was buying into Dominion Energy, I added even more pipelines that year. None of the companies will make me rich but with dividend yields at that time of around 10%, I'm not complaining. Dividend yields are now back down to a more normal 5 to 6 %. Still holding.

Of course I'd be lying if every company went according to plan. Another pipeline I started buying in 2015, got whacked when the company found it was overstretched financially after the pandemic first started in early 2020 and cut the dividend. I lost near half of the money I'd put into that one.
Well my perspective with very cyclical stocks is these are usually businesses to rent, rather than businesses to own.. So in the past, when I've bought things like Barrick Gold, or Russian oil stocks, or Saudi banks, it's been because of a catalyst – like rising commodity prices – and I'll put a Stop Loss on them, and manually nudge it up (a manual floating Stop).. So I'd aim never to sell, but rather to let the trend run, and let the Stop Loss take me out at 5-10% below the peak.

More recently, I bought Invesco Energy S&P US Select Sector ETF as a play on energy prices and an inflation hedge, with an aim to hold onto it and rebalance against a similarly large holding in gold. And this has worked well so far. I think I'd usually look to buy the sector, rather than the stock. I can't tell what a good price for Exxon or Dominion would be.
I tend to stay away from the energy producers now, and just stick with the pipelines in the energy sector. Just buy and hold for as long as possible. The oldest pipeline we have in the portfolio goes back to twenty years ago when first purchased. The energy sector represents about 15% of the taxable portfolio.
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HomerJ
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Re: The Dangerous Allure of Individual Stocks

Post by HomerJ »

Logan Roy wrote: Thu Feb 16, 2023 6:44 am About 50% of individual stocks will underperform T-bills. About 90% will probably underperform the market. This is not a bad thing. Forget all about trading and gambling on risky sectors and early growth businesses, and just focus on buying great, big, obvious businesses, that have long-term competitive advantages, when they're available on lower prices.
Just buy the good businesses.. Is it really that easy?

I'm afraid people have seen the difficulty of that idea for a hundred years.

"Take all your savings and buy some good stock and hold it till it goes up. If it don't go up, don't buy it"
- Will Rogers (died in 1935)
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Logan Roy
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Re: The Dangerous Allure of Individual Stocks

Post by Logan Roy »

HomerJ wrote: Mon Feb 20, 2023 10:33 am
Logan Roy wrote: Thu Feb 16, 2023 6:44 am About 50% of individual stocks will underperform T-bills. About 90% will probably underperform the market. This is not a bad thing. Forget all about trading and gambling on risky sectors and early growth businesses, and just focus on buying great, big, obvious businesses, that have long-term competitive advantages, when they're available on lower prices.
Just buy the good businesses.. Is it really that easy?

I'm afraid people have seen the difficulty of that idea for a hundred years.

"Take all your savings and buy some good stock and hold it till it goes up. If it don't go up, don't buy it"
- Will Rogers (died in 1935)
I'd be in two minds how to answer that.. Buffett and Munger would say it is quite straightforward – but very few investors actually invest like this.. It's a theory for why there's a Quality premium: the average investor speculates too much.

But I'd say it's a better way of framing the challenge of stock-picking: maintain a minimum acceptable level of diversification, while working out how much of the market you should probably be avoiding.
Claudia Whitten
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Re: The Dangerous Allure of Individual Stocks

Post by Claudia Whitten »

calmaniac wrote: Fri Jan 07, 2022 4:13 pm Another "overpayment" is time. Do you really want to spend the time needed to research individual companies and monitor their financial health? When to get in and get out? I would posit that your time is more valuable than that.
Totally agree with this.
Claudia Whitten
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Re: The Dangerous Allure of Individual Stocks

Post by Claudia Whitten »

arcticpineapplecorp. wrote: Fri Jan 14, 2022 1:37 pm Was the extra risk you took with the 5% of your money worth that extra 0.55% return? (that's half of 1 percent more than you would have had).

Is that 0.55% extra return really going to move the needle?
Is that 0.55% extra return going to mean the difference between retiring vs. not retiring?
Will that 0.55% extra return get you into the hedge fund hall of fame?

No, No and No.
Totally correct. Investing a little of your money in individual stocks is a foolish distraction. And investing a lot of your money in individual stocks is a foolish mistake.
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