Author Topic: 1st post - case against individual stocks?  (Read 4287 times)

bonovox_co

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1st post - case against individual stocks?
« on: April 03, 2017, 02:23:35 PM »
Hi All, I'm new to this forum but have been following a Boglehead philosophy for a while now and am a big fan of Vanguard.  When I cleaned up my portfolio and converted "most" investments to index funds, I kept my stock in Google/Alphabet that I've owned since 2008.  The investment has grown to represent about 7% of my portfolio (real estate withstanding).  I've been reluctant to sell it and re-invest the funds in index funds.  I was curious if I could hear some arguments for getting out of the stock, and why?  Alternatively, is it good where it is?


 

seattlecyclone

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Re: 1st post - case against individual stocks?
« Reply #1 on: April 03, 2017, 02:36:10 PM »
Imagine you had your money 100% in index funds right now. Would you sell 7% of it to invest in GOOG? This is basically the same question as whether you should sell your 7% GOOG to invest in index funds. The only difference is capital gains taxes, but they should be a relatively minor factor in your decision.

TheAnonOne

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Re: 1st post - case against individual stocks?
« Reply #2 on: April 03, 2017, 02:40:03 PM »
Also, some of those large companies, think, APPL, GOOG, and Amazon are very large now. They grew at amazing rates, but like all companies, they hit a ceiling. Do you expect those companies to outperform the market forever?

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thenextguy

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Re: 1st post - case against individual stocks?
« Reply #3 on: April 03, 2017, 02:43:26 PM »
Hi All, I'm new to this forum but have been following a Boglehead philosophy for a while now and am a big fan of Vanguard.  When I cleaned up my portfolio and converted "most" investments to index funds, I kept my stock in Google/Alphabet that I've owned since 2008.  The investment has grown to represent about 7% of my portfolio (real estate withstanding).  I've been reluctant to sell it and re-invest the funds in index funds.  I was curious if I could hear some arguments for getting out of the stock, and why?  Alternatively, is it good where it is?

Well, you've had considerable appreciation since 2008. Do you know what your tax liability will be if you do sell? That would be the only thing preventing me from selling. But 7% of your portfolio also isn't such a high amount that you're not diversified.

bonovox_co

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Re: 1st post - case against individual stocks?
« Reply #4 on: April 03, 2017, 02:53:52 PM »
I should mention that it's in a traditional IRA, that's been part of the reason I haven't thought too much in the short term about selling.    I'm not sure how that affects my tax liability.  I'm assuming others here might know :).

seattlecyclone

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Re: 1st post - case against individual stocks?
« Reply #5 on: April 03, 2017, 02:55:50 PM »
I should mention that it's in a traditional IRA, that's been part of the reason I haven't thought too much in the short term about selling.    I'm not sure how that affects my tax liability.  I'm assuming others here might know :).

No taxes whatsoever for trades within an IRA. In that case, whether you should keep 7% of your money invested in GOOG is really exactly the same question as whether you should sell 7% of your mutual funds to buy GOOG.

powskier

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Re: 1st post - case against individual stocks?
« Reply #6 on: April 03, 2017, 08:48:23 PM »


Personally, if you have your emotions in check and aren't considering speculating and aren't worrying obsessively about it, I don't see the harm in just keeping it.  There is no award for ideological purity in investing.  An index fund is just a way to get broad diversification at rock bottom prices.  You bought google, you paid the commission.  It doesn't cost a cent to continue to own it the way you do.  There is wisdom in not fiddling with things.

+1. Bolding is mine.

Sell if you think you can re invest better elsewhere or if you want GOOG to be a smaller part of your portfolio. It is frequently well represented in most index funds. Since it is in an IRA there is no tax issue.

MustacheAndaHalf

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Re: 1st post - case against individual stocks?
« Reply #7 on: April 03, 2017, 09:21:53 PM »
There is a reward in ideological purity - just ask the overwhelming majority of active fund managers who get beaten by a market weighted index.  Those fund managers do things like pick Alphabet/Google above other stocks, and then fail to beat the market with their emphasis.  Here's the SPIVA scorecard showing that active funds are roughly 90% likely to have worse returns:
https://us.spindices.com/documents/spiva/spiva-us-mid-year-2016.pdf

The U.S. Total Stock market already holds 2% in Alphabet/Google, so you wouldn't be giving up on the stock entirely.  But you'd be able to not only diversify that money into the U.S. stock market, but invest in Total International as well.

Car Jack

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Re: 1st post - case against individual stocks?
« Reply #8 on: April 05, 2017, 08:37:35 AM »
Tim Cook is no Steve Jobs.

Long term, I'd short Apple.

talltexan

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Re: 1st post - case against individual stocks?
« Reply #9 on: April 05, 2017, 09:35:09 AM »
I own GOOGL in a taxable account, personally. That position represents about 0.7% of my net worth, but it's fun to keep an interest in the company and wear a Google T-shirt to the office on earnings release dates. I think of it as a "Prestige property" like owning a nice watch.

I think 7% is a large stake. Could you sell half?

FIPurpose

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Re: 1st post - case against individual stocks?
« Reply #10 on: April 05, 2017, 09:36:42 AM »
Sell call options on it until it sells?

calpolyjohn

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Re: 1st post - case against individual stocks?
« Reply #11 on: April 05, 2017, 11:43:01 AM »
Tim Cook is no Steve Jobs.

Long term, I'd short Apple.

1) This post is about Google/Alphabet stock, not Apple.

2) Shorting Apple long term is very likely bad advice.

runewell

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Re: 1st post - case against individual stocks?
« Reply #12 on: April 05, 2017, 01:47:54 PM »
7% is a large stake, I would sell at least half.

Rubic

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Re: 1st post - case against individual stocks?
« Reply #13 on: April 05, 2017, 03:18:06 PM »
Long term, I'd short Apple.

You'd be betting against Warren Buffett.

I don't own any AAPL (except indirectly), but I wouldn't want to be the party on
the opposite side of his position.

talltexan

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Re: 1st post - case against individual stocks?
« Reply #14 on: April 06, 2017, 07:55:03 AM »
As luck would have it, my other "prestige property" individual stocks are Ford and Kinder Morgan.

I felt really smart when Berkshire took a stake in KMI (at something close to my cost basis of $17), but I recently read that they've sold it, so I ought to feel uneasy about continuing to maintain my position in it.

ChpBstrd

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Re: 1st post - case against individual stocks?
« Reply #15 on: April 07, 2017, 11:38:42 AM »
History is full of stories about large, blue chip tech companies with awesome histories and past performance that failed to keep pace with innovation and were toast before most investors even knew it. You might think of this as the natural life cycle for tech companies. Also bear in mind that virtually nobody who worked at Alphabet during their explosive growth years is still in that job.

Imagine having 7% of your portfolio in these names at their peak. By the time failure was obvious, it was usually too late.

Yahoo
Nokia
Blackberry
IBM
AOL
MySpace

If I was you, I'd do like FIPurpose said and sell call options until the shares are assigned. Then put the proceeds to work in an index fund, with dividends set to reinvest.

FIPurpose

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Re: 1st post - case against individual stocks?
« Reply #16 on: April 07, 2017, 01:00:17 PM »
I mean honestly, I think Google is a pretty solid company to own. I don't know about Alphabet. I just saw that Google launched YouTubeTV. $35 a month that includes ESPN. Talk about taking on cable!

Google can be a good piece of a well-diversified portfolio, but if it's the only stock you own that's a whole other game. I don't think companies like Google, Microsoft, Apple, HP, or IBM are going anywhere. They may be overvalued at certain points like any other stock, but they'll be around for decades to come. The only difference is that Google has yet to set up a dividend which to me would show that they would have solid money-making assets. Google feels like a safer bet than Amazon at least that company is wayyyy overvalued.

acroy

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Re: 1st post - case against individual stocks?
« Reply #17 on: April 07, 2017, 01:32:07 PM »
you're overweight Google!
it's already in your index funds (assuming you have standard S&P, etc).
If you're keeping due to a feeling (loyalty etc) then beware.
if you're keeping it because you want to be overweight Google, stay the course.
Be informed, make honest decision.
Good luck!

Heckler

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Re: 1st post - case against individual stocks?
« Reply #18 on: April 07, 2017, 01:39:24 PM »
History is full of stories about large, blue chip tech companies with awesome histories and past performance that failed to keep pace with innovation and were toast before most investors even knew it. You might think of this as the natural life cycle for tech companies. Also bear in mind that virtually nobody who worked at Alphabet during their explosive growth years is still in that job.

Imagine having 7% of your portfolio in these names at their peak. By the time failure was obvious, it was usually too late.

Yahoo
Nokia
Blackberry
IBM
AOL
MySpace

If I was you, I'd do like FIPurpose said and sell call options until the shares are assigned. Then put the proceeds to work in an index fund, with dividends set to reinvest.

Adding some big Canadian names,...
Nortel
Ballard

Proud Foot

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Re: 1st post - case against individual stocks?
« Reply #19 on: April 07, 2017, 03:57:09 PM »
I mean honestly, I think Google is a pretty solid company to own. I don't know about Alphabet. I just saw that Google launched YouTubeTV. $35 a month that includes ESPN. Talk about taking on cable!

If you think Google is a solid company to own then you think Alphabet is as well.  Holding Alphabet is the only way to own Google.

OP if you don't want to sell it but want to protect yourself from the stock tanking you could also place a trailing stop.  This will automatically sell the price falls to your predetermined price point and you can always cancel it and adjust the price higher if the stock price continues to climb.

FIPurpose

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Re: 1st post - case against individual stocks?
« Reply #20 on: April 07, 2017, 04:08:47 PM »
I mean honestly, I think Google is a pretty solid company to own. I don't know about Alphabet. I just saw that Google launched YouTubeTV. $35 a month that includes ESPN. Talk about taking on cable!

If you think Google is a solid company to own then you think Alphabet is as well.  Holding Alphabet is the only way to own Google.

OP if you don't want to sell it but want to protect yourself from the stock tanking you could also place a trailing stop.  This will automatically sell the price falls to your predetermined price point and you can always cancel it and adjust the price higher if the stock price continues to climb.

Not to get into too much semantics, but that only means I think Google is a good stock for Alphabet to hold. I don't know much about Alphabet's larger portfolio, but since it's run by the Google founders, I'd be pretty confident there as well. Nevertheless, I haven't reviewed the earnings statement of Alphabet.

Hargrove

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Re: 1st post - case against individual stocks?
« Reply #21 on: April 07, 2017, 08:23:57 PM »
Imagine having 7% of your portfolio in these names at their peak. By the time failure was obvious, it was usually too late.

Yahoo
Nokia
Blackberry
IBM
AOL
MySpace

On an aside, I'm up 25% on IBM in less than a year, they're about to revolutionize healthcare, they're competing in cloud, and they are running with Google at the AI Olympics. They haven't split stock since 1999, they pay a fat dividend, and they're not tremendously down from all-time highs. You could do much worse than IBM with your stock casino bucks.

FIPurpose

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Re: 1st post - case against individual stocks?
« Reply #22 on: April 07, 2017, 08:51:10 PM »
Imagine having 7% of your portfolio in these names at their peak. By the time failure was obvious, it was usually too late.

Yahoo
Nokia
Blackberry
IBM
AOL
MySpace

On an aside, I'm up 25% on IBM in less than a year, they're about to revolutionize healthcare, they're competing in cloud, and they are running with Google at the AI Olympics. They haven't split stock since 1999, they pay a fat dividend, and they're not tremendously down from all-time highs. You could do much worse than IBM with your stock casino bucks.

Yep I was thinking it but IBM is definitely the stock in that list that's not like the others.

aceyou

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Re: 1st post - case against individual stocks?
« Reply #23 on: April 08, 2017, 07:21:34 AM »
Alright, I'll make my case. 

There exists a huge amount of research from things like the Trinity study that low cost index funds, in addition to bonds, gives you the highest probability of success long term.  (Plus recommendations from the smartest investor in the world, Warren Buffet)

When you do things that deviate from the assumptions of the Trinity study, you are choosing to forgo their researched results, for a less researched/more unknown long term outcome.  Some of these deviations could include:

- buying high cost actively managed funds.
- choosing a suboptimal asset allocation, like maybe 20/80 equities to bonds.
- going away from index funds in your equities portion of your portfolio (the deviation you are choosing)
- choosing a ridiculous withdraw rate

So my question is this:  If none of us know whether your Alphabet strategy or an all index fund strategy will turn out better, what's your motivation for picking an allocation strategy that goes counter to what has beens shown to be researched best practices? 

talltexan

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Re: 1st post - case against individual stocks?
« Reply #24 on: April 10, 2017, 08:28:23 AM »
Alright, I'll make my case. 

There exists a huge amount of research from things like the Trinity study that low cost index funds, in addition to bonds, gives you the highest probability of success long term.  (Plus recommendations from the smartest investor in the world, Warren Buffet)

When you do things that deviate from the assumptions of the Trinity study, you are choosing to forgo their researched results, for a less researched/more unknown long term outcome.  Some of these deviations could include:

- buying high cost actively managed funds.
- choosing a suboptimal asset allocation, like maybe 20/80 equities to bonds.
- going away from index funds in your equities portion of your portfolio (the deviation you are choosing)
- choosing a ridiculous withdraw rate

So my question is this:  If none of us know whether your Alphabet strategy or an all index fund strategy will turn out better, what's your motivation for picking an allocation strategy that goes counter to what has beens shown to be researched best practices?

I think your bolded deviation doesn't apply when 7% of a portfolio is in individual stocks. That means 93% of the portfolio is allocated in accordance with the Trinity Study assumptions, so a withdrawal rate in excess of 3.6% should still be iron clad..