Author Topic: Why is active stock picking so taboo on here ?  (Read 22076 times)

caracarn

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Re: Why is active stock picking so taboo on here ?
« Reply #100 on: March 06, 2018, 02:38:49 PM »

So your alternative to index investing is to build your own index?

No, it's called building a portfolio.
No, it's really not.  You are just building a tiny "average".  As I stated in one of my posts earlier, a well run investment club does exactly this, buys 12-18 stocks and hopes to best the market.  And it can happen and for some it does, but it is a ton of work compared to indexing which requires 0 work, so one might argue it is infinitely more work.  Having played that game to ten years, I'd say that it was not worth the effort as we beat the market by less than 1/2% over that time.  And I promise you I thought I was at least as good at doing this as you think you are.

kayvent

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Re: Why is active stock picking so taboo on here ?
« Reply #101 on: March 06, 2018, 03:22:13 PM »
Drive by post by someone who only read the first few posts and the last few:

It should always be noted that Warren Buffet is not a stock picker. Berkshire Hathaway (BH) buys companies outright or large sections of companies or makes large, direct investments. Before BH makes a decision, the key BH players will fly to the head office of the destination company, meet their leadership team, etc... This is after BH has already done extensive research. They are active with the boards and leaderships of companies they are involved with. I'm also saying BH instead of Warren Buffet because they are often conflated. There are many genius investors in BH and the apparatus has teams of support and leadership.

I'm saying this all because you & I are not BH. Even when we are active stock pickers, we are leeches. We're not on the board of directors for the companies we invest in, we don't have enough shares to alter share holder resolutions, and we're not investors that brought new capital into the operation.

What has worked for BH and a small number of other organizations, often can't scale to the individual investor. Patience, looking for a good value, not buying into crazes, and other advice do scale to us.

Kyle B

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Re: Why is active stock picking so taboo on here ?
« Reply #102 on: March 06, 2018, 04:06:38 PM »
Drive by post by someone who only read the first few posts and the last few:

It should always be noted that Warren Buffet is not a stock picker. Berkshire Hathaway (BH) buys companies outright or large sections of companies or makes large, direct investments. Before BH makes a decision, the key BH players will fly to the head office of the destination company, meet their leadership team, etc... This is after BH has already done extensive research. They are active with the boards and leaderships of companies they are involved with. I'm also saying BH instead of Warren Buffet because they are often conflated. There are many genius investors in BH and the apparatus has teams of support and leadership.

I'm saying this all because you & I are not BH. Even when we are active stock pickers, we are leeches. We're not on the board of directors for the companies we invest in, we don't have enough shares to alter share holder resolutions, and we're not investors that brought new capital into the operation.

What has worked for BH and a small number of other organizations, often can't scale to the individual investor. Patience, looking for a good value, not buying into crazes, and other advice do scale to us.
BH buys tons of securities, as does Munger (DJCO).

Tyson

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Re: Why is active stock picking so taboo on here ?
« Reply #103 on: March 07, 2018, 09:24:42 AM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can? 
« Last Edit: March 07, 2018, 09:26:20 AM by tyort1 »

Kyle B

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Re: Why is active stock picking so taboo on here ?
« Reply #104 on: March 07, 2018, 10:08:30 AM »
Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.
Actually, the experts do far worse than indexing. That was the point of Warren Buffett's bet:

https://www.usatoday.com/story/money/markets/2018/03/07/warren-buffett-made-10-year-bet-his-market-strategy-heres-how-he-won/402823002/
« Last Edit: March 07, 2018, 10:11:11 AM by Kyle B »

Dicey

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Re: Why is active stock picking so taboo on here ?
« Reply #105 on: March 07, 2018, 11:00:35 AM »
The level of detail here from people is impressive I thank you all for advising me in the best way possible

I think indexing I will go for in 12 months time and see where it takes me... hopefully I will get lucky and the market will take a dive just before I start to Go aggressive in the index!

Where is that cartoon about someone on the internet being wrong? <---- Rhetorical question, no action required.

There has been lots of good input on this thread. Near the bottom of page one, it seemed the lights had turned on for the OP, but the bolded above tells the truth. They're gonna do what they wanna do no matter what. Oh, well. You can't save 'em all.

Tyson

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Re: Why is active stock picking so taboo on here ?
« Reply #106 on: March 07, 2018, 11:44:44 AM »
Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.
Actually, the experts do far worse than indexing. That was the point of Warren Buffett's bet:

https://www.usatoday.com/story/money/markets/2018/03/07/warren-buffett-made-10-year-bet-his-market-strategy-heres-how-he-won/402823002/

HOLY SHIT, it's even worse than I thought.  Hahahahahahahah man the active funds got SPANKED!!  Here's the relevant paragraph:

"The final results of the bet, according to Buffett, provided a resounding victory for low-cost index funds over high-cost hedge funds. The returns over the 10-year period for the five hedge funds of funds ranged from a mere 0.3 percent to 6.5% annually.

A representative S&P 500 index fund generated an 8.5% annual return."


0.3%!!!!!  All that work and some of the very best money managers in the world ended up with a 10 year return of 0.3%!!!!  During one of the greatest bull markets in history!!!!  It would be tragic, if it weren't so damn funny.

Jamese20

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Re: Why is active stock picking so taboo on here ?
« Reply #107 on: March 08, 2018, 03:33:49 AM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

boarder42

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Re: Why is active stock picking so taboo on here ?
« Reply #108 on: March 08, 2018, 04:50:50 AM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.

caracarn

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Re: Why is active stock picking so taboo on here ?
« Reply #109 on: March 08, 2018, 06:13:45 AM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Yes, I would agree.  You've been told many, many times how your strategy is difficult to pull off and why Buffett's statements still do not apply to individuals yet you keep finding ways to insist you are different, the special snowflake and we're not getting it.  We are.  You've made up your mind that you think this is doable.  So go do it, and as everyone has made clear when the likely result is less than you hoped for, you will not get any sympathy coming back here to admit that.  Several of us have explained how we've walked the road you want to walk and given you our results, which align with the "poorer returns than we'd hoped" and that the school of hard knocks showed us that indexing is more than good enough. 

Tyson

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Re: Why is active stock picking so taboo on here ?
« Reply #110 on: March 08, 2018, 08:33:45 AM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Actually that's not a true statement.  There's plenty of fund managers that take a more buy and hold methodology and..... they perform almost as well as indexing.  Notice I said "almost".  It's a lot of work and you end up with worse results. 

Don't waste your time/effort trying to beat the market, it's MUCH more powerful to spend your time/effort reducing your expenses.  You never did answer before - what is your current savings rate? 

Telecaster

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Re: Why is active stock picking so taboo on here ?
« Reply #111 on: March 08, 2018, 11:16:05 AM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...


I'm not familiar with that quote, but Buffett has also said he's met maybe 10 people in his lifetime he believed could beat the market.  I imagine he's met a lot of people over the years. 

Jamese20

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Re: Why is active stock picking so taboo on here ?
« Reply #112 on: March 08, 2018, 12:09:57 PM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Yes, I would agree.  You've been told many, many times how your strategy is difficult to pull off and why Buffett's statements still do not apply to individuals yet you keep finding ways to insist you are different, the special snowflake and we're not getting it.  We are.  You've made up your mind that you think this is doable.  So go do it, and as everyone has made clear when the likely result is less than you hoped for, you will not get any sympathy coming back here to admit that.  Several of us have explained how we've walked the road you want to walk and given you our results, which align with the "poorer returns than we'd hoped" and that the school of hard knocks showed us that indexing is more than good enough.

not sure if you have read my other comments but i have fully decided indexes are going to be my strategy.... if i spend so much time to lose money it will really drive me crazy... i dont think i can afford to make that mistake these days

i was merely pointing out that most fund managers trade alot

caracarn

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Re: Why is active stock picking so taboo on here ?
« Reply #113 on: March 08, 2018, 02:31:15 PM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Yes, I would agree.  You've been told many, many times how your strategy is difficult to pull off and why Buffett's statements still do not apply to individuals yet you keep finding ways to insist you are different, the special snowflake and we're not getting it.  We are.  You've made up your mind that you think this is doable.  So go do it, and as everyone has made clear when the likely result is less than you hoped for, you will not get any sympathy coming back here to admit that.  Several of us have explained how we've walked the road you want to walk and given you our results, which align with the "poorer returns than we'd hoped" and that the school of hard knocks showed us that indexing is more than good enough.

not sure if you have read my other comments but i have fully decided indexes are going to be my strategy.... if i spend so much time to lose money it will really drive me crazy... i dont think i can afford to make that mistake these days

i was merely pointing out that most fund managers trade alot
I did see your other comments, but as others pointed out I think you fully decided to do it for 12 months.  Not sure that is "fully decided".  Either way, you'll do what you'll do and I wish you well.

moof

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Re: Why is active stock picking so taboo on here ?
« Reply #114 on: March 08, 2018, 05:10:43 PM »
A few random thoughts...

#1 One should start with how much they have in their portfolio to play with.  Active stock picking with a few thousand will create huge losses in trading fees, making it possible to net worse returns even if you beat the market.

#2 As a single investor you have access to much less info, and lower quality info than some Wall Street trader who can afford to have an analyst investigate companies before buying.  You get press releases to read.  So you are going into a gun fight with a knife.

#3 Your time is valuable.  If you want to spend hours each week investigating each trade, that time is highly valuable.  Factor that lost value into your returns.

#4 If you let 100 people make random stock picks for a year only the winners will be shouting from the roof tops.  People will scream about how they beat the market for a year, and make up excuses for the years they lost their shirt (or your shirt).  You can easily be fooled into thinking that most people that go to Vegas win.

#5 You are emotional.  Do you trust yourself to not get excited by hype?  Do you trust your self not to panic sell?  Index funds are more stable than individual stocks, making it easier to trust your self to follow a nice and simple asset allocation.

If you think you can go out maneuver the index, go for it.  Professional traders with much better resources than you mostly fail to beat the market over any decent stretch.  In the end it is YOUR money, I don't care what you do with it.  Go nuts.

Jamese20

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Re: Why is active stock picking so taboo on here ?
« Reply #115 on: March 09, 2018, 05:31:20 AM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Yes, I would agree.  You've been told many, many times how your strategy is difficult to pull off and why Buffett's statements still do not apply to individuals yet you keep finding ways to insist you are different, the special snowflake and we're not getting it.  We are.  You've made up your mind that you think this is doable.  So go do it, and as everyone has made clear when the likely result is less than you hoped for, you will not get any sympathy coming back here to admit that.  Several of us have explained how we've walked the road you want to walk and given you our results, which align with the "poorer returns than we'd hoped" and that the school of hard knocks showed us that indexing is more than good enough.

not sure if you have read my other comments but i have fully decided indexes are going to be my strategy.... if i spend so much time to lose money it will really drive me crazy... i dont think i can afford to make that mistake these days

i was merely pointing out that most fund managers trade alot
I did see your other comments, but as others pointed out I think you fully decided to do it for 12 months.  Not sure that is "fully decided".  Either way, you'll do what you'll do and I wish you well.

in 12 months time i will be aggressively investing, i havent looked back at what i wrote but the time frame i have for aggressively going in 100% stocks is 10-12 years - my question was all about is it worth giving the buffet style approach worth it? it seems to me it just isnt and it seems more like a gamble then skill - so indexing it will be

CorpRaider

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Re: Why is active stock picking so taboo on here ?
« Reply #116 on: March 09, 2018, 06:22:18 AM »
Whatever you are most likely to hold through the next crash is probably the best route.  If you think "I own a slice of American/World business, it will be ok" when it is down 40% then good for you.

If you are going to freak out because of "the market" and a bunch of macro stuff because you just own "stocks" and are more likely to hold on to BRK because you know Buffett is the GOAT and just read that he cut a sweet deal with GS, or even a dividend stock portfolio because the checks keeps hitting your account, then those choices may be optimal.

It seems like indexing could give you fewer opportunities to make bad choices, as you are just long stocks or not and aren't tempted to to chase performance in funds or stocks.


JetBlast

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Re: Why is active stock picking so taboo on here ?
« Reply #117 on: March 09, 2018, 07:44:56 AM »
I think the objections to stock picking have been pretty fully explained at this point. That said, I do think it is possible to consistently beat the market if the following all line up:

1) Raw intelligence. You either have it or you donít. If you donít have the ability to learn complex accounting and handle the information available about a company youíre just throwing darts blindfolded. In this self-sorted community the majority likely have enough innate intelligence.

2) Education. You have to do the work to learn about the stock market and financial accounting. Then you need to learn about the individual industries and businesses within them. Not impossible but takes a huge amount of time.

3) Temperament. I think the FI/ER community likely has a disproportionate number of people with the right temperament since we tend to play the long game, but itís still a small number of us. Most of the population doesnít have it and Iíd think a majority here donít either.

4) Interest. Without this 1 & 3 donít matter and you probably wonít work on 2. Good think is you probably donít want to try and just index. Winning!

5) The Game. You need to pick the right game. Unless youíre running an investment firm you canít do what Buffett does. Buying an insurance company to invest its float is out of reach. Getting a meeting with management before you make an investment is unlikely. You need to operate where most investment managers canít. Early in Buffettís career his strategy was what Charlie Munger calls ďcigar butt investing.Ē  Finding dumpy little companies that you can get the last couple puffs from. Thatís a game you might stand a better chance in since most fund managers are limited to companies with reasonably large market caps. Itís where Iíve personally had my best luck and where Iíd focus my efforts if I got back into active investing.

Tyson

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Re: Why is active stock picking so taboo on here ?
« Reply #118 on: March 09, 2018, 08:28:22 AM »
I think the objections to stock picking have been pretty fully explained at this point. That said, I do think it is possible to consistently beat the market if the following all line up:

1) Raw intelligence. You either have it or you donít. If you donít have the ability to learn complex accounting and handle the information available about a company youíre just throwing darts blindfolded. In this self-sorted community the majority likely have enough innate intelligence.

2) Education. You have to do the work to learn about the stock market and financial accounting. Then you need to learn about the individual industries and businesses within them. Not impossible but takes a huge amount of time.

3) Temperament. I think the FI/ER community likely has a disproportionate number of people with the right temperament since we tend to play the long game, but itís still a small number of us. Most of the population doesnít have it and Iíd think a majority here donít either.

4) Interest. Without this 1 & 3 donít matter and you probably wonít work on 2. Good think is you probably donít want to try and just index. Winning!

5) The Game. You need to pick the right game. Unless youíre running an investment firm you canít do what Buffett does. Buying an insurance company to invest its float is out of reach. Getting a meeting with management before you make an investment is unlikely. You need to operate where most investment managers canít. Early in Buffettís career his strategy was what Charlie Munger calls ďcigar butt investing.Ē  Finding dumpy little companies that you can get the last couple puffs from. Thatís a game you might stand a better chance in since most fund managers are limited to companies with reasonably large market caps. Itís where Iíve personally had my best luck and where Iíd focus my efforts if I got back into active investing.

Maybe over the short term, but not over the long term.  If it were true, we'd see it reflected in the professional world where people do have all 4 of these requirements.  And some have them in spades.  No one beats the market over the long term.  Unless you're buying out companies and actively taking control to turn them around (like Buffet often does). 

BUT, that's all beside the point for me.  The main point for me is this:  Doing all 4 things above is WORK.  In fact it's harder work than what I do right now for a living full time.  The main point of MMM is to FIRE.  When I FIRE, I want to STOP WORKING, not take on another job as a financial analyst. 

JetBlast

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Re: Why is active stock picking so taboo on here ?
« Reply #119 on: March 09, 2018, 10:02:42 AM »
I think the objections to stock picking have been pretty fully explained at this point. That said, I do think it is possible to consistently beat the market if the following all line up:

1) Raw intelligence. You either have it or you donít. If you donít have the ability to learn complex accounting and handle the information available about a company youíre just throwing darts blindfolded. In this self-sorted community the majority likely have enough innate intelligence.

2) Education. You have to do the work to learn about the stock market and financial accounting. Then you need to learn about the individual industries and businesses within them. Not impossible but takes a huge amount of time.

3) Temperament. I think the FI/ER community likely has a disproportionate number of people with the right temperament since we tend to play the long game, but itís still a small number of us. Most of the population doesnít have it and Iíd think a majority here donít either.

4) Interest. Without this 1 & 3 donít matter and you probably wonít work on 2. Good think is you probably donít want to try and just index. Winning!

5) The Game. You need to pick the right game. Unless youíre running an investment firm you canít do what Buffett does. Buying an insurance company to invest its float is out of reach. Getting a meeting with management before you make an investment is unlikely. You need to operate where most investment managers canít. Early in Buffettís career his strategy was what Charlie Munger calls ďcigar butt investing.Ē  Finding dumpy little companies that you can get the last couple puffs from. Thatís a game you might stand a better chance in since most fund managers are limited to companies with reasonably large market caps. Itís where Iíve personally had my best luck and where Iíd focus my efforts if I got back into active investing.

Maybe over the short term, but not over the long term.  If it were true, we'd see it reflected in the professional world where people do have all 4 of these requirements.  And some have them in spades.  No one beats the market over the long term.  Unless you're buying out companies and actively taking control to turn them around (like Buffet often does). 

BUT, that's all beside the point for me.  The main point for me is this:  Doing all 4 things above is WORK.  In fact it's harder work than what I do right now for a living full time.  The main point of MMM is to FIRE.  When I FIRE, I want to STOP WORKING, not take on another job as a financial analyst.

I believe there are two reasons you donít see it reflected in the professional world very often. First, most professionals donít have the temperament.  Itís very rare to find a fund manager thatís ok with not making a trade for several months or more. Second, most are limited in what they can do. Some of the games are off limits to them. Either their fundís rules have minimum market caps for companies that can be invested it which limits options, or they have investors breathing down their necks for outperformance quarterly, monthly, or even weekly.

I agree with you on the point about it being work. The thing is, for a few people it doesnít feel like work. Itís a passion. They love the process of learning about industries and companies. They love figuring out what theyíd be willing to pay for a portion of current assets and future earnings. Thatís what I meant by having the interest. Thereís a reason Buffett says he ďtap dances to work.Ē

Tyson

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Re: Why is active stock picking so taboo on here ?
« Reply #120 on: March 09, 2018, 10:15:11 AM »
I think the objections to stock picking have been pretty fully explained at this point. That said, I do think it is possible to consistently beat the market if the following all line up:

1) Raw intelligence. You either have it or you donít. If you donít have the ability to learn complex accounting and handle the information available about a company youíre just throwing darts blindfolded. In this self-sorted community the majority likely have enough innate intelligence.

2) Education. You have to do the work to learn about the stock market and financial accounting. Then you need to learn about the individual industries and businesses within them. Not impossible but takes a huge amount of time.

3) Temperament. I think the FI/ER community likely has a disproportionate number of people with the right temperament since we tend to play the long game, but itís still a small number of us. Most of the population doesnít have it and Iíd think a majority here donít either.

4) Interest. Without this 1 & 3 donít matter and you probably wonít work on 2. Good think is you probably donít want to try and just index. Winning!

5) The Game. You need to pick the right game. Unless youíre running an investment firm you canít do what Buffett does. Buying an insurance company to invest its float is out of reach. Getting a meeting with management before you make an investment is unlikely. You need to operate where most investment managers canít. Early in Buffettís career his strategy was what Charlie Munger calls ďcigar butt investing.Ē  Finding dumpy little companies that you can get the last couple puffs from. Thatís a game you might stand a better chance in since most fund managers are limited to companies with reasonably large market caps. Itís where Iíve personally had my best luck and where Iíd focus my efforts if I got back into active investing.

Maybe over the short term, but not over the long term.  If it were true, we'd see it reflected in the professional world where people do have all 4 of these requirements.  And some have them in spades.  No one beats the market over the long term.  Unless you're buying out companies and actively taking control to turn them around (like Buffet often does). 

BUT, that's all beside the point for me.  The main point for me is this:  Doing all 4 things above is WORK.  In fact it's harder work than what I do right now for a living full time.  The main point of MMM is to FIRE.  When I FIRE, I want to STOP WORKING, not take on another job as a financial analyst.

I believe there are two reasons you donít see it reflected in the professional world very often. First, most professionals donít have the temperament.  Itís very rare to find a fund manager thatís ok with not making a trade for several months or more. Second, most are limited in what they can do. Some of the games are off limits to them. Either their fundís rules have minimum market caps for companies that can be invested it which limits options, or they have investors breathing down their necks for outperformance quarterly, monthly, or even weekly.

I agree with you on the point about it being work. The thing is, for a few people it doesnít feel like work. Itís a passion. They love the process of learning about industries and companies. They love figuring out what theyíd be willing to pay for a portion of current assets and future earnings. Thatís what I meant by having the interest. Thereís a reason Buffett says he ďtap dances to work.Ē

That's a pretty big claim, you should be able to show lots of examples of the market being beaten if it were true.  If millions and millions of people invest in the market, then there should be at least several thousand people beating the market just based on statistical distribution.  So lets see it.  And specifically over a 30 year time frame.  5 or 10 years is way to short a time frame to assess the validity of any particular approach.

Telecaster

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Re: Why is active stock picking so taboo on here ?
« Reply #121 on: March 09, 2018, 10:28:19 AM »

That's a pretty big claim, you should be able to show lots of examples of the market being beaten if it were true.  If millions and millions of people invest in the market, then there should be at least several thousand people beating the market just based on statistical distribution.  So lets see it.  And specifically over a 30 year time frame.  5 or 10 years is way to short a time frame to assess the validity of any particular approach.

There may be, we just don't know who they are.   And even if we did, how do we verify it?  Michael Burry (from the book the Big Short) started posting his picks on the Internet.   He was so good that big money investors started seeking him out.   Then as a hedge fund manager he annihilated the market.  But if he hadn't been posting his picks we never would have heard of him. 

koshtra

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Re: Why is active stock picking so taboo on here ?
« Reply #122 on: March 09, 2018, 10:43:32 AM »
But really, the reason I'd discourage stock-picking as a side gig is that it's not productive meaningful work: it doesn't create value. You're just swapping tokens in a zero-sum game. If you have all those qualities in JetBlast's wonderful list you can find ways to make money that also improve the world and help people -- that will lend more meaning to your life and make everyone happier. Which is what we actually want financial freedom for in the first place, isn't it? To do cool stuff. Diddling data all day to win a poker game is kind of fun for a while, but it's not much of a way to prepare for a life of creative, meaningful, post-fire work.

caracarn

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Re: Why is active stock picking so taboo on here ?
« Reply #123 on: March 09, 2018, 10:47:29 AM »
I think it is important to note one key difference that I have not seen anyone call.

Buffet and company do not "invest" in any company they meet with management on in the same sense we would, meaning just buying their stock.  They are investing by taking some ownership at that point.  If they were to meet with management and then just go buy stock that would be considered insider trading which is illegal and would be a big problem for them.  So I think it is helpful to realize that that level of what Buffet does is not really relevant to the apples to apple comparison because he does not have an advantage that others would not.  That's precisely why insider trading is illegal, because then you would have that advantage.

Tyson

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Re: Why is active stock picking so taboo on here ?
« Reply #124 on: March 09, 2018, 11:02:56 AM »

That's a pretty big claim, you should be able to show lots of examples of the market being beaten if it were true.  If millions and millions of people invest in the market, then there should be at least several thousand people beating the market just based on statistical distribution.  So lets see it.  And specifically over a 30 year time frame.  5 or 10 years is way to short a time frame to assess the validity of any particular approach.

There may be, we just don't know who they are.   And even if we did, how do we verify it?  Michael Burry (from the book the Big Short) started posting his picks on the Internet.   He was so good that big money investors started seeking him out.   Then as a hedge fund manager he annihilated the market.  But if he hadn't been posting his picks we never would have heard of him.

It's possible to beat the market in the short term by taking larger risks.  That's true and it will always be true.  The problem is that with bigger risk, you eventually end up with bigger losses.  Which is why you need a 30 year window - anything shorter and you don't get a full measure of the approach advocated. 

If you've watched financial results over time you'll see that every decade or so there's a new "Michael Burry" that crushes it due to exploiting some area no one recognized before.  After a few years these people all tend to fade to obscurity.  Why?  Because they generally don't keep beating the market in any significant way over the long term. 

In my industry (tech) I see this all the time - there's the star startup company that's exploiting a niche (usually a new technology based niche), they're kicking ass all over the place.  They do so well they think "man, we are just better at business than all these other suckers".  Check on them 5 or 10 years later.  Often times they are no longer around.  If they are around, they aren't growing like gangbusters anymore, they exploited their niche while it lasted and now they're back to pedestrian growth and earnings. 

So I am NOT saying it's impossible to beat the market over the short term.  I AM saying that if you want to sway my opinion on this topic, you'll need to show evidence that your way 1) beats the market for a 30 year time period 2) is not more risky than indexing

If you can meet those 2 requirements, then I'll cede the point.

enigmawrap

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Re: Why is active stock picking so taboo on here ?
« Reply #125 on: March 29, 2018, 06:15:59 PM »
Border42 - Me, give an "actionable plan" to follow? LOL! 1) Maybe when I become financially independent (e.g., income is above and beyond daily expenses), and 2) even then, I would not go around telling people "do this and you'll become rich..." 

However, to put the "good, bad, and ugly..." on the table, I will say the following:  1) Yup, I've lost lots of money in real estate, mostly to making bad decisions about people and not about property, 2) Yup, I've lost lots of money in stocks, mostly to making bad (e.g., emotional) decisions about what/when/how to buy..., and 3) after all those mistakes, do I still own/looking to buy more real estate? - Yup....do i still own/buying stocks? - Yup.  If you are looking for some "tip," well, I really don't do that.  If you want to measure investment "return" by asking about something I bought 5 years ago, and giving you the value for today, well, I won't do that either.  However, I will give one example:  I own shares/am accumulating shares in a rather boring company - Hormel Foods.  why?  They have little debt, they are very conservatively managed, and even in this so-called health food craze, they are still selling products that people need to replenish every week (and during a hurricane, their products are off-the-shelf...learned from personal experience in Florida).  As far as numbers, the "internal rate of return" of my purchases over the last 3 years has been approx. 4.5% (avg).  This is NOT the dividend yield, it is simply Earnings Per share/purchase price.  And, as long as the company keeps doing what they've been doing, I expect that return to increase over time, as in - for the shares I paid $30 for last year, the IRR in 10 years will have increased to 9 or 10% (not too shabby).  And, with that internal cash generation, and so many other variables, it would be expected that the dividends will increase proportionately.  Of course, I am not telling you or anyone else to buy stock in this company - it's just what I have done.

powskier

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Re: Why is active stock picking so taboo on here ?
« Reply #126 on: March 29, 2018, 10:59:45 PM »
Picking 6 or 7 stocks is so old school. You should really just create a High Frequency trading algorithm instead.


talltexan

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Re: Why is active stock picking so taboo on here ?
« Reply #127 on: March 30, 2018, 08:37:41 AM »
I don't understand bragging about an internal rate of return of 4.5% when--three years ago--the SP500 was 2050, and today it's 2650 (which is a 30% increase before considering dividends).

KTG

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Re: Why is active stock picking so taboo on here ?
« Reply #128 on: March 30, 2018, 09:18:21 AM »
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.

appleshampooid

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Re: Why is active stock picking so taboo on here ?
« Reply #129 on: March 30, 2018, 09:34:36 AM »
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.
I think the standard answer is more diversification, and more opportunity for growth in the small caps that the 500 excludes. Same answer when you ask why most Bogleheads/MMM/indexers hold international funds when Jack Bogle himself and Buffet have both said they would stay away. Potential for higher returns, more diversity, etc.

It is hard for me to argue with straight up S&P500 for your equity exposure. Couldn't be simpler. But I have recently added some international exposure after hemming and hawing for a while, even though they have lagged the US for as far back as I could backtest. Why? FOMO. In 30 years I can look back and see if I would have actually missed out on anything, lol.

ChpBstrd

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Re: Why is active stock picking so taboo on here ?
« Reply #130 on: March 30, 2018, 02:50:08 PM »
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.

I wouldn't worry about it. The benefits of diversification start to level off after you have about 40 stocks in a portfolio. Going from 500 to, say, 10,000 stocks doesn't reduce asystemic risk as much as going from 10 to 20 does. Just keep on avoiding taxes and fees.

https://www.investopedia.com/managing-wealth/modern-portfolio-theory-why-its-still-hip/

Telecaster

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Re: Why is active stock picking so taboo on here ?
« Reply #131 on: March 30, 2018, 10:46:23 PM »
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.

Because they are both cap weighted, so Total Market and S&P 500 are basically the same thing.  Both are so heavily loaded towards the biggest cap stocks that the rest of the index doesn't matter much, if it all.   

I can't speak for Buffett, but I think he is suggesting that simplicity is good.  No one ever made a mistake by simply investing in a nice, low-cost S&P 500 index fund.  In fact, if you simply did that, you beat the pants off of 95% of managed funds, not to mention all most all hedge fund managers, and virtually all (or maybe all) managers of big endowments--like Harvard, whose endowment has pitfiully lagged the market.  This is Harvard.  Very smart people.  And they flat suck at investing.    Investing in that low-cost S&P 500 index fund puts you in the upper echelon of investors in terms of returns.  You are a rock star.  You are LeBron James of investors.  Just by doing the basics.  That is some serious power.  You can drill down on portfolio theory as far as you like, but that low-cost S&P 500 index fund gets you on the A-list with almost no effort. 

So if you are giving blanket advice that can be reduced to a sound bite, suggesting a low-cost S&P 500 index fund is about as good advice as there is. 


Jamese20

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Re: Why is active stock picking so taboo on here ?
« Reply #132 on: March 31, 2018, 02:35:25 PM »
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.

Because they are both cap weighted, so Total Market and S&P 500 are basically the same thing.  Both are so heavily loaded towards the biggest cap stocks that the rest of the index doesn't matter much, if it all.   

I can't speak for Buffett, but I think he is suggesting that simplicity is good.  No one ever made a mistake by simply investing in a nice, low-cost S&P 500 index fund.  In fact, if you simply did that, you beat the pants off of 95% of managed funds, not to mention all most all hedge fund managers, and virtually all (or maybe all) managers of big endowments--like Harvard, whose endowment has pitfiully lagged the market.  This is Harvard.  Very smart people.  And they flat suck at investing.    Investing in that low-cost S&P 500 index fund puts you in the upper echelon of investors in terms of returns.  You are a rock star.  You are LeBron James of investors.  Just by doing the basics.  That is some serious power.  You can drill down on portfolio theory as far as you like, but that low-cost S&P 500 index fund gets you on the A-list with almost no effort. 

So if you are giving blanket advice that can be reduced to a sound bite, suggesting a low-cost S&P 500 index fund is about as good advice as there is.

Looking into this alot since I started this very controversial thread a global small cap index is what I have decided I will go with

Bogle 4% return's over the next decade is hard to argue against and I like that small caps seem to fly under the radar

I'll jump on the s&p when it lowers i think

Telecaster

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Re: Why is active stock picking so taboo on here ?
« Reply #133 on: March 31, 2018, 07:03:51 PM »

I'll jump on the s&p when it lowers i think

What if it doesn't lower? 

MrUpwardlyMobile

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Re: Why is active stock picking so taboo on here ?
« Reply #134 on: March 31, 2018, 07:05:54 PM »

I'll jump on the s&p when it lowers i think

What if it doesn't lower?

Then he wonít lol

HBFIRE

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Re: Why is active stock picking so taboo on here ?
« Reply #135 on: March 31, 2018, 07:41:23 PM »
Active stock picking versus indexing are two completely different things and shouldn't be compared.

The first is taking a gamble on an individual company.

Indexing, on the other hand, is really making an investment on two assumptions:

1) human population will continue to grow (which increases productivity and profits).
2) technology will continue to improve (which also increases productivity and profits).

As long as one of the above continues, company profits (and hence index fund value) will continue to grow.  With stock picking, you have to pick an individual winner, which is not the same thing at all.


SwitchActiveDWG

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Re: Why is active stock picking so taboo on here ?
« Reply #136 on: March 31, 2018, 09:38:01 PM »
Iím really surprised threads like this exists on these forums...

Math is here to help. Passive index funds should be your only equities. This is your real money.

Individuals stocks, market timing, shorting, etc... this is your play money.

Some people like to play with their real money, nothing wrong with that if thatís what they want to do.

Jamese20

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Re: Why is active stock picking so taboo on here ?
« Reply #137 on: April 01, 2018, 01:02:38 AM »

I'll jump on the s&p when it lowers i think

What if it doesn't lower?

Considering its dropped twice for various reasons already this year I'd say this is a silly question - the s&p looks so expensive at the moment I don't think it's a great place to start smashing all your money into it


Jamese20

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Re: Why is active stock picking so taboo on here ?
« Reply #138 on: April 01, 2018, 01:09:49 AM »
Active stock picking versus indexing are two completely different things and shouldn't be compared.

The first is taking a gamble on an individual company.

Indexing, on the other hand, is really making an investment on two assumptions:

1) human population will continue to grow (which increases productivity and profits).
2) technology will continue to improve (which also increases productivity and profits).

As long as one of the above continues, company profits (and hence index fund value) will continue to grow.  With stock picking, you have to pick an individual winner, which is not the same thing at all.

Buffet would say it's not a gamble... Don't confuse what most people do (speculation) with active investing

If I was to stock pick I would do so using very strict rules..but quite frankly I know that many many people fail and simply I don't need to if I can get 10% owning indexes.

Now, the only thing that prompted me to even look into this was the depressing returns Bogle and a couple others are predicting over the next decade  (which alot of people state they can make good judgment on) and it was hard to argue different with Bogle 4% for a decade really is quite depressing and looking into other indexes there are way cheaper alternatives than the S&p 500

HBFIRE

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Re: Why is active stock picking so taboo on here ?
« Reply #139 on: April 01, 2018, 01:22:26 AM »



Buffet would say it's not a gamble... Don't confuse what most people do (speculation) with active investing



Yes but none of us are world class investors like Buffet (even though some may like to think they are).  For us mere mortals it is a gamble, that's the point.

Now, the only thing that prompted me to even look into this was the depressing returns Bogle and a couple others are predicting over the next decade  (which alot of people state they can make good judgment on) and it was hard to argue different with Bogle 4% for a decade really is quite depressing and looking into other indexes there are way cheaper alternatives than the S&p 500

Not Bogle, or anyone for that matter knows what the market will do over the next decade.  If he did, he'd be wealthier than anyone several times over.  Ignore the noise.  Contribute as much as you can to your funds, then don't look at them and spend time with the family.
« Last Edit: April 01, 2018, 01:29:34 AM by dustinst22 »

Goldielocks

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Re: Why is active stock picking so taboo on here ?
« Reply #140 on: April 01, 2018, 12:26:01 PM »
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

hmm..  I wonder if @SC93 picks stocks?

Goldielocks

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Re: Why is active stock picking so taboo on here ?
« Reply #141 on: April 01, 2018, 01:00:53 PM »
@tyort1  put it well in their initial post -- "What is your savings rate?".

Let's assume that it is possible to pick stocks.  (Not talking about playing the technicals game, but choosing companies, buying low for value, waiting, then selling.)

Yet - this does not work with the typical individual investor's lifecycle:

Typical Investors Lifecycle


Early -- Up to about $200k, it just does not pay to choose stocks.  The cost for the individual trades or accounts or research newsletters to manage several stocks (e.g., 10) at under $20k each just costs more.  It costs money as well as time to stay informed enough to  make a difference.  The reward of any stock picking incremental is quickly eaten up by the trading costs.

At this point, increasing your savings rate will far, far outweigh any stock picking returns.   Even those 2% MER mutual funds make nearly no impact on overall growth compared to actual savings rates in the early stages.

Mid -- After $200k, the investments start to gain momentum, and snowball.   
--Returns definitely matter and low cost investing is important, equally important to the savings rate.   At this point, it is possible to make $$'s stock picking versus the fees (if we assume that is possible), but the actual $ value of the incremental is in the hundreds/ low thousands of dollars a year.   Versus intense study of the business fundamentals and needing to pay daily attention to the markets for your stocks, and being constantly on edge because a $50k drop is a huge hit to your goals in terms of overall portfolio and annual personal expenses.

High -- At $1 Million, people who are good at stock picking (if we assume it is possible), can make a real difference.   YET, at this point, the snowball has landed, and is growing on its own fairly rapidly.   Most of us start to back down on the equity / stock risk, and look more for risk reduction in our savings, rather than top returns. So again the time spent stock picking again is just not worth it because maximizing the return is no longer the goal.  At this point, it is far better to start looking at corporate bond strategies, tax planning / tax loss harvesting, asset allocations, and other areas to maximum the net return to you in after tax dollars with security and lower risk.

So -- At no time is it to the individual's net, substantial advantage to engage in stock picking. -- Even if we agree it is possible to net 20% better than the market, year over year (e.g., 2% added to rate of returns, 9% returns versus 7.5%).

Telecaster

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Re: Why is active stock picking so taboo on here ?
« Reply #142 on: April 01, 2018, 01:17:41 PM »

I'll jump on the s&p when it lowers i think

What if it doesn't lower?

Considering its dropped twice for various reasons already this year I'd say this is a silly question - the s&p looks so expensive at the moment I don't think it's a great place to start smashing all your money into it

The S&P has been overvalued by traditional metrics since some time in 2013.   A lot of people make the mistake that thinking a high valuation means a correction is imminent.  That is one possible outcome, but there are other possible outcomes as well.  For example,  market could simply sideways for a few years, or grow very slowly until earnings catch up.   We saw that recently in a roughly two-year period from mid 2014 through mid 2016 when the market didn't do much of anything at all, and then of course was followed by a rally.    If back then you were waiting for an entry point, you'd still be out of the market. 

Jamese20

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Re: Why is active stock picking so taboo on here ?
« Reply #143 on: April 01, 2018, 03:58:27 PM »

I'll jump on the s&p when it lowers i think

What if it doesn't lower?

Considering its dropped twice for various reasons already this year I'd say this is a silly question - the s&p looks so expensive at the moment I don't think it's a great place to start smashing all your money into it

The S&P has been overvalued by traditional metrics since some time in 2013.   A lot of people make the mistake that thinking a high valuation means a correction is imminent.  That is one possible outcome, but there are other possible outcomes as well.  For example,  market could simply sideways for a few years, or grow very slowly until earnings catch up.   We saw that recently in a roughly two-year period from mid 2014 through mid 2016 when the market didn't do much of anything at all, and then of course was followed by a rally.    If back then you were waiting for an entry point, you'd still be out of the market.

I'm not talking about being out the market, I simply mean investing in areas that represent better value or are more out of favour

Every metric of the US states it's expensive and yes it may not correct but with interest rates rising I sense it will drop to better valuations...in my home town the UK seems very cheap at this moment due to brexit, so I think it will pay to have some sensible logic to weight holding based on some value logic.

I will always have some US. Exposure but I think to start 55+ %at these levels doesn't seem like smart investing to me. Even Bogle thinks they are fully valued

As I say I may just keep investing in global small caps where historically they do very well even when the S&p tends to be fully valued..in fact they completely slipped by the tech bubble like there was no issue.

My pensions are all in globally diversified portfolios anyhow


Hargrove

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Re: Why is active stock picking so taboo on here ?
« Reply #144 on: April 02, 2018, 06:20:14 AM »
The argument you're making has been made by someone every 3 seconds of the market's history.

And it has been wrong more often than it has been right. That's really it.

It's determined by extremely highly-trained, brilliant professionals losing their shirts repeatedly. It's demonstrated here in various statistics. The stories you read of successes are when people who insist on doing it win, and narrate the bet as if they "knew all along" how the future was going to play out and simply made "sensible" choices. Then maybe they sell a book.

No one can stop you from doing whatever you feel like doing with your money, but people here strongly recommend not timing the market, because the forum tries to give good advice.

Jamese20

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Re: Why is active stock picking so taboo on here ?
« Reply #145 on: April 02, 2018, 07:11:39 AM »
The argument you're making has been made by someone every 3 seconds of the market's history.

And it has been wrong more often than it has been right. That's really it.

It's determined by extremely highly-trained, brilliant professionals losing their shirts repeatedly. It's demonstrated here in various statistics. The stories you read of successes are when people who insist on doing it win, and narrate the bet as if they "knew all along" how the future was going to play out and simply made "sensible" choices. Then maybe they sell a book.

No one can stop you from doing whatever you feel like doing with your money, but people here strongly recommend not timing the market, because the forum tries to give good advice.

It's not timing the market ...it's just looking at valuations in areas that are better than others..I will always be in the market

Doesn't mean I have to be in 60% us if it's stupidly overvalued...and everyone seems to be aligned that there isn't much room to wriggle with US markets especially the S&P 500.

If you look at when the us has crashed and the p/e alone it tells its own story

HBFIRE

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Re: Why is active stock picking so taboo on here ?
« Reply #146 on: April 02, 2018, 08:17:20 AM »
Changing your allocation because you think itís overvalued is precisely market timing.

caracarn

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Re: Why is active stock picking so taboo on here ?
« Reply #147 on: April 02, 2018, 08:36:48 AM »
The argument you're making has been made by someone every 3 seconds of the market's history.

And it has been wrong more often than it has been right. That's really it.

It's determined by extremely highly-trained, brilliant professionals losing their shirts repeatedly. It's demonstrated here in various statistics. The stories you read of successes are when people who insist on doing it win, and narrate the bet as if they "knew all along" how the future was going to play out and simply made "sensible" choices. Then maybe they sell a book.

No one can stop you from doing whatever you feel like doing with your money, but people here strongly recommend not timing the market, because the forum tries to give good advice.

It's not timing the market ...it's just looking at valuations in areas that are better than others..I will always be in the market

Doesn't mean I have to be in 60% us if it's stupidly overvalued...and everyone seems to be aligned that there isn't much room to wriggle with US markets especially the S&P 500.

If you look at when the us has crashed and the p/e alone it tells its own story
It's exactly timing the market.

Just because you are not picking individual stocks you are still trying to "pick" something based on a period of "time" i.e. timing.  A rose by any other name is still a rose, said a guy better at words than all of us.

Picking one country over other is timing.  You think the US is overvalued so you might pick UK because Brexit.  Change the words and you see it's the same.  I'm going to pick Apple because of the dope new iPhoneX they just released is going to kill the Galaxy S9, so I think Samsung is overvalued.  What you are doing is market timing.  Stop trying to convince yourself that it is not.

markbike528CBX

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Re: Why is active stock picking so taboo on here ?
« Reply #148 on: April 02, 2018, 09:36:26 AM »
.........
If you look at when the us has crashed and the p/e alone it tells its own story
It's exactly timing the market..............
+1

Jamese20 used the word WHEN.  How is WHEN not associated with time, timing?   
While all those timing indicators may (or may not) be true, they are still timing indicators.

Telecaster

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Re: Why is active stock picking so taboo on here ?
« Reply #149 on: April 02, 2018, 10:02:56 AM »
It's not timing the market ...it's just looking at valuations in areas that are better than others..I will always be in the market

Doesn't mean I have to be in 60% us if it's stupidly overvalued...and everyone seems to be aligned that there isn't much room to wriggle with US markets especially the S&P 500.

If you look at when the us has crashed and the p/e alone it tells its own story

It tells a story, but not much of one.  The correlation between P/E and future 1-year returns is very close to, if not actually,  zero.   For 10-year returns, the correlation is only 0.38, which is still quite weak. 

https://personal.vanguard.com/pdf/s338.pdf

From this we can infer that if P/Es are high, then 10-year returns will probably be low.  Which makes sense, you can't be above average all the time.   But it is hard to divine much more than that.  As the article points out, mean-reversion isn't a very strong effect either.