Author Topic: Am I wrong to be invested in individual stocks?  (Read 20116 times)

Cache_Stash

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Am I wrong to be invested in individual stocks?
« on: May 01, 2017, 12:52:05 PM »
I've been reading up on investing for the last 25 years.  I never had money in my 20's to invest.  I dabbled in the stock market in individual stocks back in early oughts and didn't fair too well but I learned a lot about stock selection.  I went into index funds from 2003 through 2006.  I then started picking stocks again in 2007.  I bought AAPl and GMCR as my main investments.  I abide by the thesis that it is impossible to follow more than 5-7 companies and therefore I don't normally hold over 7 or eight stocks.  (As Buffet says - "diversity is for protection against ignorant".)  I truly follow the companies and have valid reasons for owning them.  When those reasons evaporate - I sell.  I am normally vested about 70-95% in equities dependent upon market conditions.  No index funds, ETFs  bond funds or other investment vehicles.  Individual stocks only.  My CAGR from 2007 until end of last year is 21.5%.  I'm currently at 18.5% YTD.

Very little trading.  Investments comprise about 80% of my portfolio.

Am I wrong for doing this?

Do you think I will revert to the mean?

Is anyone else doing this?

I feel like I'm on an island sometimes.

BTW, Index ETFs are a great vehicle!  It is the best investment if you don't want to take the time to devote to DIY stock investments.  I would say 90% of the populace belongs in ETFs.

Updated to fix Warren's Quote (I knew I had it wrong and it read as such)
« Last Edit: May 01, 2017, 01:21:21 PM by Cache Stash »

Retire-Canada

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Re: Am I wrong to be invested in individual stocks?
« Reply #1 on: May 01, 2017, 01:00:47 PM »
I abide by the thesis that it is impossible to follow more than 5-7 companies and therefore I don't normally hold over 7 or eight stocks.  (As Buffet says - "diversity is for the ignorant".)

I think having 80% of your invested $$ in 7-8 stocks is crazy and reckless. I'd also suggest that Buffet has a whole lot more than 7-8 different investments in his portfolio. If you think you are special a special snowflake go nuts. Just be aware of the downside to your approach.
« Last Edit: May 01, 2017, 02:27:54 PM by Retire-Canada »

Spork

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Re: Am I wrong to be invested in individual stocks?
« Reply #2 on: May 01, 2017, 01:08:24 PM »

Is anyone else doing this?


If this means "is anyone else invested in individual stocks" ... Yes, I've got some
If this means "is anyone else invested the way I am" ... no... I'm not.

We've probably got about 7% of our net worth in individual stocks.... across about 20 companies.  (It started out with fewer, but spin offs have increased that number.)  The majority of our holdings are index funds like pretty much everyone else here.

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #3 on: May 01, 2017, 01:14:01 PM »
I abide by the thesis that it is impossible to follow more than 5-7 companies and therefore I don't normally hold over 7 or eight stocks.  (As Buffet says - "diversity is for the ignorant".)

I think having 80% of your invested $$ in 7-8 stocks is crazy and reckless. I'd also suggest that Buffet has a whole lot more than 7-8 different investments in his portfolio. If you think you are a special snowflake go nuts. Just be aware of the downside to your approach.

I don't think I'm a special "snowflake".  Although, thank you for your kind support.  You're a truly nice person. 

I follow my stocks.  As an example.  When I owned GMCR, I would take pictures of Walmart shelving to check on conditions for five straight days and compare restock along with expiration dates of product to ensure GMCR wasn't channel stuffing.  I would also check on growth through how the product penetrated market by high end grocers first to low end - not so great a location grocers.  I would do inventory counts at Kohls.  I spent a lot of time to ensure that product was moving.  I subsequently netted a 12X investment over a period of < 7 years.

Knowledge and work is what gets exceptional returns on anything you do in life.

Good luck to you and your "special snowflake" type comments.  I'll bet that attitude doesn't pay off for you.


Retire-Canada

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Re: Am I wrong to be invested in individual stocks?
« Reply #4 on: May 01, 2017, 01:37:09 PM »
When you bet your financial future on your ability to pick 7-8 stocks despite the enormous volume of research that says this will under perform the market most of the time you cannot avoid being a special snowflake special. You would otherwise be saying all the rest of the professional investors with far more, education, skill, time and resources behind them simply don't want to succeed badly enough to beat someone like you.
« Last Edit: May 01, 2017, 02:28:32 PM by Retire-Canada »

Ocinfo

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Re: Am I wrong to be invested in individual stocks?
« Reply #5 on: May 01, 2017, 01:38:18 PM »
I abide by the thesis that it is impossible to follow more than 5-7 companies and therefore I don't normally hold over 7 or eight stocks.  (As Buffet says - "diversity is for the ignorant".)

I think having 80% of your invested $$ in 7-8 stocks is crazy and reckless. I'd also suggest that Buffet has a whole lot more than 7-8 different investments in his portfolio. If you think you are a special snowflake go nuts. Just be aware of the downside to your approach.

I don't think I'm a special "snowflake".  Although, thank you for your kind support.  You're a truly nice person. 

I follow my stocks.  As an example.  When I owned GMCR, I would take pictures of Walmart shelving to check on conditions for five straight days and compare restock along with expiration dates of product to ensure GMCR wasn't channel stuffing.  I would also check on growth through how the product penetrated market by high end grocers first to low end - not so great a location grocers.  I would do inventory counts at Kohls.  I spent a lot of time to ensure that product was moving.  I subsequently netted a 12X investment over a period of &lt; 7 years.

Knowledge and work is what gets exceptional returns on anything you do in life.

Good luck to you and your "special snowflake" type comments.  I'll bet that attitude doesn't pay off for you.

To answer your question, yes I have about 12% of my portfolio invested in individual stocks (6 companies), which have out performed my index funds over the last 5 years. However, in the long run virtually everyone will be better of investing in index funds or even managed funds than trying to do it themselves.

From what you wrote, it certainly seems like you put in the leg work to justify stock picking (doesn't mean you'll win in the end but you're trading your time for the potential of a higher return) but most people read an article and buy stock then panic and sell when it drops or as it's on the way up. From my experience, panic selling or  locking in gains results in most people, even when picking long term winners, to ultimately do worse than the indexes (I bought NFLX when it dropped in 2011, panicked when it dropped more and sold. I would be worth $100k more if I had stayed the course). Now, I buy stocks that I intend to keep for 30+ years whether they're up or down and treat the money like I would gambling or fun money...


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Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #6 on: May 01, 2017, 02:22:41 PM »
When you bet your financial future on your ability to pick 7-8 stocks despite the enormous volume of research that says this will under perform the market most of the time you cannot avoid the being a special snowflake. You would otherwise be saying all the rest of the professional investors with far more, education, skill, time and resources behind them simply don't want to succeed badly enough to beat someone like you.

I guess I have some data that says otherwise. 

As a side note.  There are always outliers in every group.  I think everyone on this forum is a Special Snowflake.  This is because they look at things without bias and go above and beyond in securing their future.

It still doesn't mean that name calling at the 12 year old level is required.

Retire-Canada

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Re: Am I wrong to be invested in individual stocks?
« Reply #7 on: May 01, 2017, 02:31:32 PM »
I guess I have some data that says otherwise. 

Since the term special snowflake is throwing you for a loop I have edited my posts to remove that distraction. I apologize if that term offended you deeply. That wasn't my intent.

Please post your data so we can understand the basis for your conclusion.

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #8 on: May 01, 2017, 02:34:06 PM »
I abide by the thesis that it is impossible to follow more than 5-7 companies and therefore I don't normally hold over 7 or eight stocks.  (As Buffet says - "diversity is for the ignorant".)

I think having 80% of your invested $$ in 7-8 stocks is crazy and reckless. I'd also suggest that Buffet has a whole lot more than 7-8 different investments in his portfolio. If you think you are a special snowflake go nuts. Just be aware of the downside to your approach.

I don't think I'm a special "snowflake".  Although, thank you for your kind support.  You're a truly nice person. 

I follow my stocks.  As an example.  When I owned GMCR, I would take pictures of Walmart shelving to check on conditions for five straight days and compare restock along with expiration dates of product to ensure GMCR wasn't channel stuffing.  I would also check on growth through how the product penetrated market by high end grocers first to low end - not so great a location grocers.  I would do inventory counts at Kohls.  I spent a lot of time to ensure that product was moving.  I subsequently netted a 12X investment over a period of &lt; 7 years.

Knowledge and work is what gets exceptional returns on anything you do in life.

Good luck to you and your "special snowflake" type comments.  I'll bet that attitude doesn't pay off for you.

To answer your question, yes I have about 12% of my portfolio invested in individual stocks (6 companies), which have out performed my index funds over the last 5 years. However, in the long run virtually everyone will be better of investing in index funds or even managed funds than trying to do it themselves.

From what you wrote, it certainly seems like you put in the leg work to justify stock picking (doesn't mean you'll win in the end but you're trading your time for the potential of a higher return) but most people read an article and buy stock then panic and sell when it drops or as it's on the way up. From my experience, panic selling or  locking in gains results in most people, even when picking long term winners, to ultimately do worse than the indexes (I bought NFLX when it dropped in 2011, panicked when it dropped more and sold. I would be worth $100k more if I had stayed the course). Now, I buy stocks that I intend to keep for 30+ years whether they're up or down and treat the money like I would gambling or fun money...


Sent from my iPhone using Tapatalk

My experience in my first foray into the stock picking world yielded the same results as far as being disciplined.  It isn't for everyone.  That is certain.  I have learned some discipline over the years, but I always wish I would be more so. 

Agree with the 30 year time frame.  If you were to invest in IBM, Coke, GE, Walgreens, and other highly valued equities in the 70s you would have done very well up until about 15 years ago.  To me the new "Blue chips" are comprised of AAPL, AMZN, FB, and a handful of others.  It has been that way for the last ten years and I expect it will be for the next twenty years.  This is what Warren Buffet speaks of all the time.  I have yet to hear him write or say anything that I would challenge.  I'm a mere mortal.

What are some of the stocks do you own and why?

I'll start:

AMZN - Yes I know it is overvalued in respect to its earnings.  Jeff Bezos has no inclination to start making money.  He takes it and pours it into capital to fund the growth.  I was a skeptic until he started Amazon Web Services (AWS).  He started it up less than five years ago and now owns the majority of the market.  It is putting margin and cash flow into the bank for AMZN and it is growing at 40%.  AWS is now 1/3rd of AMZN's revenue stream.  I didn't buy it for their retail presence.  I bought it because of Jeff Bezos and the win at all costs culture.  No other cloud service provider is coming even close.  Jeff Bezos wants to own the world.  I think he may do it.  I'm on board until things change otherwise.
« Last Edit: May 01, 2017, 03:07:30 PM by Cache Stash »

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #9 on: May 01, 2017, 02:35:45 PM »
I guess I have some data that says otherwise. 

Since the term special snowflake is throwing you for a loop I have edited my posts to remove that distraction. I apologize if that term offended you deeply. That wasn't my intent.

Please post your data so we can understand the basis for your conclusion.

Thanks!  Quite civil of you.

I am starting the journey on how and why I buy the stocks that I buy.

I'm seeing if others see the same thing (risking confirmation bias along the way).
« Last Edit: May 01, 2017, 02:44:30 PM by Cache Stash »

Financial.Velociraptor

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Re: Am I wrong to be invested in individual stocks?
« Reply #10 on: May 01, 2017, 02:40:59 PM »
I'm almost entirely investing in individual picks.  So, yeah.  I'm a pariah here sometimes.  Skeptics are welcome to review the Transparency tab at my blog to determine if my results are worth the trouble.

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #11 on: May 01, 2017, 02:43:08 PM »
I'm almost entirely investing in individual picks.  So, yeah.  I'm a pariah here sometimes.  Skeptics are welcome to review the Transparency tab at my blog to determine if my results are worth the trouble.

Brother in Arms.  Glad to see.

I'll check it out.

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Re: Am I wrong to be invested in individual stocks?
« Reply #12 on: May 01, 2017, 02:49:40 PM »
I'm almost entirely invested in individual stocks. I've beaten the market handily over the past 10 years. I don't think it's terribly dangerous if you pay attention to what you are doing and treat your stocks as businesses that you own and not "names" to be traded. 7-8 stocks seems like a very small amount to me, though.

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #13 on: May 01, 2017, 02:55:47 PM »
Since the question was asked, i generally pick stocks to buy only if i feel i have an insider level of insight, assuming what i do is not illegal.

One example is a local tech company, leader in their field.  My friend, a senior engineering executive complains to me how their wall street analyst hates them and their write up is never favorable, despite huge cash reserves on their balance sheet and new products filling their pipeline that are ahead of competitors.  The stock is trading at a low earnings multiple for their industry (close to book value of their cash). It is yielding 2%, so not bad.  I buy the company stock.

4 years later the stock had doubled and my friend decides to buy a $100k Tessla.  He never spends money on himself and is among the most frugal guys i know (he paid his own tuition by working nearly full time at college to avoid debt).  I bought some more.

By end of that year stock is at 10X what i paid for it 4 years ago.

That is the anatomy of a winning stock pick.

Never had that option.  All of my picks come from conviction on a company moat, dominance, margin dominance, growth, etc...

Maybe someday....

Thanks for sharing.  I'll put those thoughts in the bag of "signs of opportunity".

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #14 on: May 01, 2017, 02:59:53 PM »
I'm almost entirely invested in individual stocks. I've beaten the market handily over the past 10 years. I don't think it's terribly dangerous if you pay attention to what you are doing and treat your stocks as businesses that you own and not "names" to be traded. 7-8 stocks seems like a very small amount to me, though.

I looked back at my past history in investing in equities.  My data was very conclusive.  My big gains only came from a handful of stocks.  Those stocks are the ones that I had the most conviction on and subsequently held the largest positions in my portfolio.  I ditched the picking of "unknown" companies" unless it pops up in my day to day living.  I'll post more on what and how I "trade" stocks that aren't on my "conviction" list.

Do you have stocks that you hold with "conviction"?

Have you made any decent returns on stocks in which you have no idea in what they do or how they are run?

« Last Edit: May 01, 2017, 03:10:41 PM by Cache Stash »

beltim

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Re: Am I wrong to be invested in individual stocks?
« Reply #15 on: May 01, 2017, 03:06:49 PM »
When you bet your financial future on your ability to pick 7-8 stocks despite the enormous volume of research that says this will under perform the market most of the time you cannot avoid being a special snowflake special. You would otherwise be saying all the rest of the professional investors with far more, education, skill, time and resources behind them simply don't want to succeed badly enough to beat someone like you.

Actually, there's a lot less literature on individual investor returns than funds.  Although research generally shows that on average individual investors underperform the market, mostly because of excessive trading and trading costs.  In fact, there is a strong inverse relationship between trading frequency of total returns.

However, unlike mutual funds, where past performance is not predictive of future success, a number of studies has demonstrated that an individual who has outperformed in the past is more likely to outperform in the future:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1004454
https://www.psychologytoday.com/files/attachments/5123/sept-2005-distributed-version.pdf
http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2007-Austria/papers/0327.pdf

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #16 on: May 01, 2017, 03:09:39 PM »
When you bet your financial future on your ability to pick 7-8 stocks despite the enormous volume of research that says this will under perform the market most of the time you cannot avoid being a special snowflake special. You would otherwise be saying all the rest of the professional investors with far more, education, skill, time and resources behind them simply don't want to succeed badly enough to beat someone like you.

Actually, there's a lot less literature on individual investor returns than funds.  Although research generally shows that on average individual investors underperform the market, mostly because of excessive trading and trading costs.  In fact, there is a strong inverse relationship between trading frequency of total returns.

However, unlike mutual funds, where past performance is not predictive of future success, a number of studies has demonstrated that an individual who has outperformed in the past is more likely to outperform in the future:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1004454
https://www.psychologytoday.com/files/attachments/5123/sept-2005-distributed-version.pdf
http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2007-Austria/papers/0327.pdf

That is exactly my experience.  Every year in which I didn't do "so well", I found that I traded way, way, way too often.  I now only make about 25-50 trades per year.  I was over 200 at one point (back when I first "tried" my hand at stock picking).

beltim

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Re: Am I wrong to be invested in individual stocks?
« Reply #17 on: May 01, 2017, 03:19:32 PM »
When you bet your financial future on your ability to pick 7-8 stocks despite the enormous volume of research that says this will under perform the market most of the time you cannot avoid being a special snowflake special. You would otherwise be saying all the rest of the professional investors with far more, education, skill, time and resources behind them simply don't want to succeed badly enough to beat someone like you.

Actually, there's a lot less literature on individual investor returns than funds.  Although research generally shows that on average individual investors underperform the market, mostly because of excessive trading and trading costs.  In fact, there is a strong inverse relationship between trading frequency of total returns.

However, unlike mutual funds, where past performance is not predictive of future success, a number of studies has demonstrated that an individual who has outperformed in the past is more likely to outperform in the future:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1004454
https://www.psychologytoday.com/files/attachments/5123/sept-2005-distributed-version.pdf
http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2007-Austria/papers/0327.pdf

That is exactly my experience.  Every year in which I didn't do "so well", I found that I traded way, way, way too often.  I now only make about 25-50 trades per year.  I was over 200 at one point (back when I first "tried" my hand at stock picking).

At 7-8 stocks, that means you hold each stock an average of 2-4 months.  That is a crazy high turnover and falls into the "high trading" category.  From my second link:
Quote
This negative relationship was seen to cause a 0.29% per year reduction in gross
returns for each trade executed per year.

Spork

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Re: Am I wrong to be invested in individual stocks?
« Reply #18 on: May 01, 2017, 03:43:41 PM »
For myself, I would consider 25-50 as a high number for trading.  There are years with our individual stocks that we do 0 trades.  I bet our average is 2.

I will also say our individual stocks have outperformed our index funds.
Individual stocks:  16.6% IRR over the past 19.6 years
Mix of index funds: 9.2% IRR over the past 18.8 years

I'll also throw out a caveat.  Personally, I think we're mostly just lucky.  We did research our buys (or most of them).  But a huge amount of our returns were from a few good picks... some of them immaculate and accidental market timing picks.  For the most part the individual stocks were to keep things fun and interesting. 

jjcamembert

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Re: Am I wrong to be invested in individual stocks?
« Reply #19 on: May 01, 2017, 03:51:03 PM »
Am I wrong for doing this?

Do you think I will revert to the mean?

I don't think that's the right question to ask. So far you haven't been "wrong." I would ask instead, "what's your return on risk?" and then, "are you comfortable with that risk?" I would do some portfolio analysis to figure out what your beta is (how much do you correlate with the market and how much volatility do you have). Once you know that, run some quick approximate calculations of how you would perform in certain market crashes (stress testing). How much would you lose? Are you comfortable with that?

I held GMCR for periods of time and know it was a very volatile stock. How did you feel when it went from $90 to $20, or $150 to $50?

What % of capital are you using? It's estimated that Buffett has $86 BILLION of cash right now, so he is going to be just fine in a market downturn.

You have to admit that you could have picked almost any big stock around 2007 and held it and you'd be ahead. We've had a huge bull market and of course just recently an even huger upside move.

Is anyone else doing this?

I feel like I'm on an island sometimes.


I dabbled in value investing a few years ago, but it isn't for me. I almost exclusively trade options now, so I'm on my own island ;) But even though I'm in options, that doesn't mean I'm making directional bets on individual companies: I still maintain a diversified portfolio and am sensitive about risk.

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #20 on: May 01, 2017, 04:53:26 PM »
Am I wrong for doing this?

Do you think I will revert to the mean?

I don't think that's the right question to ask. So far you haven't been "wrong." I would ask instead, "what's your return on risk?" and then, "are you comfortable with that risk?" I would do some portfolio analysis to figure out what your beta is (how much do you correlate with the market and how much volatility do you have). Once you know that, run some quick approximate calculations of how you would perform in certain market crashes (stress testing). How much would you lose? Are you comfortable with that?

I held GMCR for periods of time and know it was a very volatile stock. How did you feel when it went from $90 to $20, or $150 to $50?

What % of capital are you using? It's estimated that Buffett has $86 BILLION of cash right now, so he is going to be just fine in a market downturn.

You have to admit that you could have picked almost any big stock around 2007 and held it and you'd be ahead. We've had a huge bull market and of course just recently an even huger upside move.

Is anyone else doing this?

I feel like I'm on an island sometimes.


I dabbled in value investing a few years ago, but it isn't for me. I almost exclusively trade options now, so I'm on my own island ;) But even though I'm in options, that doesn't mean I'm making directional bets on individual companies: I still maintain a diversified portfolio and am sensitive about risk.

GMCR went to 116 before hitting < 20.  I got out at 106 because I felt it was ahead of itself.  I tried to establish a position a few times and lost 10% each time.  Got back in at 29 because it turned (hit a capitulation point) and got back out at 135.  It ran to 150 and then down to 70 before being purchase by another company at 90. 

Buffet's point was if he had only a million to invest he would do 50% easy every year.  His huge holdings puts him at a disadvantage as it does to active money managers.

I am agnostic to risk.  At some point I will become more risk adverse, but the moment hasn't come to this point. 

The bottom of the market was in 2009. I got in at the top in 2007.  Take  a look at that.  I was making a point that my returns included the top to bottom back to the top.

I only engage in value investing when a company has a black swan event that I feel is recoverable.  If it takes a beating, I'll engage in a short term trade as long as I feel it is undervalued.  The market can be very volatile at times and that is where money is to be made.  Without volatility, none of us would be making much money.  Ignorance and emotion drive the market.
« Last Edit: May 01, 2017, 04:56:56 PM by Cache Stash »

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #21 on: May 01, 2017, 04:55:38 PM »
For myself, I would consider 25-50 as a high number for trading.  There are years with our individual stocks that we do 0 trades.  I bet our average is 2.

I will also say our individual stocks have outperformed our index funds.
Individual stocks:  16.6% IRR over the past 19.6 years
Mix of index funds: 9.2% IRR over the past 18.8 years

I'll also throw out a caveat.  Personally, I think we're mostly just lucky.  We did research our buys (or most of them).  But a huge amount of our returns were from a few good picks... some of them immaculate and accidental market timing picks.  For the most part the individual stocks were to keep things fun and interesting.

I agree the 25 to 50 is too much. That is my lack of discipline.  I want to get down to about 10-20. 

Did you analyze why you picked those stocks?  What were the qualitative reasons for buying them?  I bet if you look at that, you may come up with why they did well and that you may well be right not lucky.
« Last Edit: May 02, 2017, 03:31:31 AM by Cache Stash »

Proud Foot

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Re: Am I wrong to be invested in individual stocks?
« Reply #22 on: May 02, 2017, 10:23:04 AM »
I do hold individual stocks in my portfolio as well.  Currently holding 23 which make up around 30% of my overall portfolio.  In the nearly 2 years I have held them my IRR is 20.5% with an individual high and low of 45% and -3%.   My only position I have ended was DVN which I made with a short term hold goal and doubled my money.  For each one I did an evaluation of the company before opening my position, I just wish I had written down and kept my analysis of how I reached my conclusions.

Khan

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Re: Am I wrong to be invested in individual stocks?
« Reply #23 on: May 02, 2017, 10:17:12 PM »
I've gone from about 80% individual/actively managed stocks by myself in 2012, to about 60% or so today(was down to around 40%, but something caught my full stock picking attention and I think the risk/reward is appropriate), and I plan on lowering that to about 30% hopefully within the next 2-3 years, primarily moving towards around 100k of "fun" money for the stock market, although mostly I just want to buy and hold ~5k positions in many good companies. Finally got around to getting some shares of Berkshire Hathaway in my Roth account!

IMO, as long as you know almost all of the research goes against your actions, and you minimize the damage you can do(by prioritizing passive investing, or long term buy and hold/dividend stocks), it's a poor decision, but not the worst thing you could do, especially as long as you're very careful about playing with falling knives. Knowing that I specifically have significant, measurable exposure to 'x' company, as opposed to "The market" makes me feel much better about what I own, and in my 401k and Roth, I let passive strategies run their course, and forget about them day to day. As a side note, most of my current individual stocks are underpriced compared to the broader stock market, or their specific industry.

I'm not sure what my exact return has been from individual holdings, but I'd venture that during this entire bull market run, on balance I think I'm just a little behind "The market" returns. I remember my mistakes and missteps far better than I do my wins too, almost all of which were me leaving the party too early. And making relatively small ventures into playing with fire(short, options) has scared me off ever doing that again just as surely as taking a $100 to a blackjack table did to Casinos, like a stupidity innoculation, or a moderate "sports car" to understand how expensive that shit can be compared to a later in life "SPORTS CAR!!!!". Losing money sucks, and I know exactly where I stand on paper losses, vs. betting on specific time and share price directions.

I do think that though almost all retail investors fail, and most active management funds fail to beat the market average, a retail investor who doesn't have industry rules on them regarding diversification or have to answer to fund investors can have, not exactly an edge, but has different forces at play. Being able to take a contrarian position on something, and being able to sit on it for 2+ years, can be a different dynamic than a typical actively managed fund can do.

frugledoc

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Re: Am I wrong to be invested in individual stocks?
« Reply #24 on: May 03, 2017, 03:20:25 AM »
I've been reading up on investing for the last 25 years.  I never had money in my 20's to invest.  I dabbled in the stock market in individual stocks back in early oughts and didn't fair too well but I learned a lot about stock selection.  I went into index funds from 2003 through 2006.  I then started picking stocks again in 2007.  I bought AAPl and GMCR as my main investments.  I abide by the thesis that it is impossible to follow more than 5-7 companies and therefore I don't normally hold over 7 or eight stocks.  (As Buffet says - "diversity is for protection against ignorant".)  I truly follow the companies and have valid reasons for owning them.  When those reasons evaporate - I sell.  I am normally vested about 70-95% in equities dependent upon market conditions.  No index funds, ETFs  bond funds or other investment vehicles.  Individual stocks only.  My CAGR from 2007 until end of last year is 21.5%.  I'm currently at 18.5% YTD.

Very little trading.  Investments comprise about 80% of my portfolio.

Am I wrong for doing this?

Do you think I will revert to the mean?

Is anyone else doing this?

I feel like I'm on an island sometimes.

BTW, Index ETFs are a great vehicle!  It is the best investment if you don't want to take the time to devote to DIY stock investments.  I would say 90% of the populace belongs in ETFs.

Updated to fix Warren's Quote (I knew I had it wrong and it read as such)

No you're not wrong, you are clearly a stock picking genius so stick with it.   Remember though,  there is a high chance you have just been lucky (do you really think you have more skill than highly trained professionals who you have outperformed? )

I have to say your method of "researching" GMCR is laughable and shows and incredibly worrying level of hubris.


Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #25 on: May 03, 2017, 07:02:21 AM »
I've been reading up on investing for the last 25 years.  I never had money in my 20's to invest.  I dabbled in the stock market in individual stocks back in early oughts and didn't fair too well but I learned a lot about stock selection.  I went into index funds from 2003 through 2006.  I then started picking stocks again in 2007.  I bought AAPl and GMCR as my main investments.  I abide by the thesis that it is impossible to follow more than 5-7 companies and therefore I don't normally hold over 7 or eight stocks.  (As Buffet says - "diversity is for protection against ignorant".)  I truly follow the companies and have valid reasons for owning them.  When those reasons evaporate - I sell.  I am normally vested about 70-95% in equities dependent upon market conditions.  No index funds, ETFs  bond funds or other investment vehicles.  Individual stocks only.  My CAGR from 2007 until end of last year is 21.5%.  I'm currently at 18.5% YTD.

Very little trading.  Investments comprise about 80% of my portfolio.

Am I wrong for doing this?

Do you think I will revert to the mean?

Is anyone else doing this?

I feel like I'm on an island sometimes.

BTW, Index ETFs are a great vehicle!  It is the best investment if you don't want to take the time to devote to DIY stock investments.  I would say 90% of the populace belongs in ETFs.

Updated to fix Warren's Quote (I knew I had it wrong and it read as such)

No you're not wrong, you are clearly a stock picking genius so stick with it.   Remember though,  there is a high chance you have just been lucky (do you really think you have more skill than highly trained professionals who you have outperformed? )

I have to say your method of "researching" GMCR is laughable and shows and incredibly worrying level of hubris.

If you think that is the only thing I researched on GMCR, I guess I understand your point (laughable).  Either that or you missed the point.

About two dozen very savvy investors had a message board devoted to just GMCR.  There was an incredible level research available and we discussed ad nauseam.  We had a fair share of Bearish people as well.  It was a public open board so it wasn't an echo chamber (that is certain).

Car Jack

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Re: Am I wrong to be invested in individual stocks?
« Reply #26 on: May 03, 2017, 07:03:47 AM »
Eventually, you'll revert to the mean.  What's that mean?  That means that if you've been winning, you're going to start losing.  I once did like you with trading individual stocks.  I stuck with what I knew, saw cycles and rode them up and down taking very small gains and chipping away, making money.  I came to the point where I had 2 positions and initially set a limit sell on both, but thought that instead, I'd cancel the sells and "what could possibly go wrong".  After my week business trip, I saw that had I kept the limit sell in place, both stocks would have sold and I'd have made a small profit on each.  What actually happened is one went into bankruptcy and the other, which was a penny stock had a big investor cut his losses and pull out.  Big face punch for me and took 3 years of gains and turned them into a total loss.  The good news is that this cured me from thinking that I knew what the hell I was doing.

Remember that guys who pick stocks for a living don't make money by picking winners.  They make money by taking a commission from investing other suckers' money and make that money when buying and make money when selling.  Whether their customer makes money or not, they make money.

I'm all index funds and savings bonds these days.  AAPL......Tim Cook is no Steve Jobs.  Sorry, but I wouldn't touch AAPL as an individual stock with a 10 foot pole unless I was shorting it.....and I don't gamble so wouldn't be doing that either.

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #27 on: May 03, 2017, 07:37:40 AM »
I hold the belief that the world is going to change in many ways very rapidly over the next 20 years, as it always has, and the future lies in not only technology currently being worked on (AI, VR, and autonomous driving) but even things that haven't been dreamt up.  I also believe the this next batch of blue chip stocks that will be running the world, so to speak, will become mega-corporations sized at numbers we currently believe are unattainable.  These few select companies have the current environment and funding to basically destroy their competition.  I think the globalization of the world's economy along with the advent of the internet has woven a fabric that independent governments have lost regulatory control.  Even if the US government tried to break up some of these companies into smaller pieces, I think they may lose in court based on jurisdiction of where their product is sold (virtually everywhere).  Either way, breaking them up may yield an OT bonus a la AT&T into baby bells. 

With that said, I also own FB.

I didn't start purchasing FB stock until they figured out how to monetize mobile.  It had dropped from the IPO price of low 40s to around 17 and it finally had a quarterly report that showed a real successful monetization of mobile at around 29.  That's when I started buying.  I have never sold a share and accumulated at times along the way. 

This list is qualitative not a quantitative.  Although I use numbers in decision making and the list below isn't a complete list as I have many other reasons for holding this stock.

My major reasons for owning (which will cause me to sell if they change):

1.  Their "moat" is the incredibly large pool of users.  Their Monthly Active User (MAU) numbers are now up to about 1.5 Billion people.  If there are around 7-8 Billion people in the world and only half of them have internet access, then that equates to about 33% of the world user pool uses FB on a monthly basis.  That is an absolutely incredible number.  I think it would be very difficult for any "startup" to overtake their user moat.  Any "startup" they view as a threat, they copy their ideas into the FB platform.  There is no protection against poaching ideas.  They recently have done this with Instagram changes that were made to ensure it remained on the same playing field as SNAP.

2.  They have made appropriate purchases of other companies when needed.  Instagram and Whatsapp were purchased at a great time and were great defensive plays against threats. For that and other reasons I think the management is solid.

3.  They are one of many working on Artificial Intelligence (AI), Virtual Reality (VR), and autonomous driving.  APPL, AMZN, GOOG are also working on most of these items.  If they all believe this is the future, then I'll follow along.  I own 3 of 4 companies listed.  I'll cover APPL later and why I don't own GOOG.



Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #28 on: May 03, 2017, 08:34:51 AM »
Eventually, you'll revert to the mean.  What's that mean?  That means that if you've been winning, you're going to start losing.  I once did like you with trading individual stocks.  I stuck with what I knew, saw cycles and rode them up and down taking very small gains and chipping away, making money.  I came to the point where I had 2 positions and initially set a limit sell on both, but thought that instead, I'd cancel the sells and "what could possibly go wrong".  After my week business trip, I saw that had I kept the limit sell in place, both stocks would have sold and I'd have made a small profit on each.  What actually happened is one went into bankruptcy and the other, which was a penny stock had a big investor cut his losses and pull out.  Big face punch for me and took 3 years of gains and turned them into a total loss.  The good news is that this cured me from thinking that I knew what the hell I was doing.

Remember that guys who pick stocks for a living don't make money by picking winners.  They make money by taking a commission from investing other suckers' money and make that money when buying and make money when selling.  Whether their customer makes money or not, they make money.

I'm all index funds and savings bonds these days.  AAPL......Tim Cook is no Steve Jobs.  Sorry, but I wouldn't touch AAPL as an individual stock with a 10 foot pole unless I was shorting it.....and I don't gamble so wouldn't be doing that either.

You owned penny stocks?

AAPL revenue, operating earnings and earnings margin for 7 years of Tim Cook and Steve Jobs reign:

Tim Cook:

$1,072,000,000,000 - $381,000,000,000 - 35.5%

Steve Jobs:

$211,000,000,000 - $52,000,000,000 - 24.6%

You're right, Tim Cook is no Steve Jobs.

Steve Job's was brilliant and capitalized on simple elegance through his fastidious nature.  He took ideas already in the market and improved them to the point where everyone wanted one.  He was demanding and ran the ship as though he owned it.  He was a good Level 4 Manager.  He was smart enough to realize what type of AAPL leader was needed when he would no longer be there.

Tim Cook is an operational genius.  He controls his costs and his supply chain costs.  He leverages the size of Apple and manages an unbelievable large quantity of complex assembled technology with inventory management beyond compare.  He understands his weaknesses which include creativity, design, and hires great management to support him and the staff of AAPL.  He surrounds himself with talent and has no fear or weakness of being ousted.  These are signs of a great level 5 leader.  The company will survive if he were to leave.

They are completely different people.  Both of whom held/hold the reins of Apple when they were the proper leader for the company.

Apple's core competency lies in simple elegance.  As long as that is the focus, which I believe it still is, then Apple will continue to put out product that is coveted by the materialistic world in which we live.


« Last Edit: May 03, 2017, 08:39:28 AM by Cache Stash »

Proud Foot

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Re: Am I wrong to be invested in individual stocks?
« Reply #29 on: May 03, 2017, 09:09:25 AM »
.... the other, which was a penny stock
....unless I was shorting it.....and I don't gamble so wouldn't be doing that either.

This does not compute to me.  How is shorting a stock a gamble but penny stocks are not?




AAPL revenue, operating earnings and earnings margin for 7 years of Tim Cook and Steve Jobs reign:

Tim Cook:

$1,072,000,000,000 - $381,000,000,000 - 35.5%

Steve Jobs:

$211,000,000,000 - $52,000,000,000 - 24.6%

You're right, Tim Cook is no Steve Jobs.

A different viewpoint - Jobs - ~35% CAGR, $21.94/share to $376.18/share ($1,504.72 split adjusted)
                                 - Cook - ~18% CAGR, $376.18/share to $146.46/share ($1,025.22 split adjusted)
                                 - (Numbers do not account for dividends. Even including them Jobs would win in this metric)

While I am not planning on selling any of my AAPL stock I don't know they will have the same growth under Cook as Jobs. Jobs introduced massive technological advances with the iPad, iPod, and iPhone.  It will be interesting to see if Apple can have similar advances with Cook or if they will just seek to optimize production of what Jobs already created.

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #30 on: May 03, 2017, 09:39:25 AM »
.... the other, which was a penny stock
....unless I was shorting it.....and I don't gamble so wouldn't be doing that either.

This does not compute to me.  How is shorting a stock a gamble but penny stocks are not?




AAPL revenue, operating earnings and earnings margin for 7 years of Tim Cook and Steve Jobs reign:

Tim Cook:

$1,072,000,000,000 - $381,000,000,000 - 35.5%

Steve Jobs:

$211,000,000,000 - $52,000,000,000 - 24.6%

You're right, Tim Cook is no Steve Jobs.

A different viewpoint - Jobs - ~35% CAGR, $21.94/share to $376.18/share ($1,504.72 split adjusted)
                                 - Cook - ~18% CAGR, $376.18/share to $146.46/share ($1,025.22 split adjusted)
                                 - (Numbers do not account for dividends. Even including them Jobs would win in this metric)

While I am not planning on selling any of my AAPL stock I don't know they will have the same growth under Cook as Jobs. Jobs introduced massive technological advances with the iPad, iPod, and iPhone.  It will be interesting to see if Apple can have similar advances with Cook or if they will just seek to optimize production of what Jobs already created.

Growing a 150BUSD market cap company is quite a bit easier than one with 500BUSD.

Completely  agree with the Jobs comment.  I do want to note the ecosystem wasn't even an embryo under his reign.  Next year it will be 20-25% of their revenue.  That is more than the revenue when Jobs ran the joint.

Edit to add: I think the comments a few years after Tim Cook retires will be "He's (new CEO) no Tim Cook"
« Last Edit: May 03, 2017, 09:44:22 AM by Cache Stash »

CCCA

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Re: Am I wrong to be invested in individual stocks?
« Reply #31 on: May 03, 2017, 11:32:24 AM »
.... the other, which was a penny stock
....unless I was shorting it.....and I don't gamble so wouldn't be doing that either.

This does not compute to me.  How is shorting a stock a gamble but penny stocks are not?




AAPL revenue, operating earnings and earnings margin for 7 years of Tim Cook and Steve Jobs reign:

Tim Cook:

$1,072,000,000,000 - $381,000,000,000 - 35.5%

Steve Jobs:

$211,000,000,000 - $52,000,000,000 - 24.6%

You're right, Tim Cook is no Steve Jobs.

A different viewpoint - Jobs - ~35% CAGR, $21.94/share to $376.18/share ($1,504.72 split adjusted)
                                 - Cook - ~18% CAGR, $376.18/share to $146.46/share ($1,025.22 split adjusted)
                                 - (Numbers do not account for dividends. Even including them Jobs would win in this metric)

While I am not planning on selling any of my AAPL stock I don't know they will have the same growth under Cook as Jobs. Jobs introduced massive technological advances with the iPad, iPod, and iPhone.  It will be interesting to see if Apple can have similar advances with Cook or if they will just seek to optimize production of what Jobs already created.

Growing a 150BUSD market cap company is quite a bit easier than one with 500BUSD.

Completely  agree with the Jobs comment.  I do want to note the ecosystem wasn't even an embryo under his reign.  Next year it will be 20-25% of their revenue.  That is more than the revenue when Jobs ran the joint.

Edit to add: I think the comments a few years after Tim Cook retires will be "He's (new CEO) no Tim Cook"

I think many are giving Tim Cook a hard time forgetting that the iPhone is the most successful consumer product in the history of the world.  Literally 1 billion have been sold at an average price of ~$600.  It's entirely possible that Tim Cook or Steve Jobs or even Jesus will not be able to create a new product that is as successful as the iPhone.  Steve Job's iPhone is a product of some amount of luck, being in the right place at the right time. 
« Last Edit: May 03, 2017, 11:39:14 AM by CCCA »

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #32 on: May 03, 2017, 12:36:51 PM »
[quote author=PizzaSteve link=topic=72768.msg1538154#msg1538154 date=1493834071

Of course execution in a way to win, via branding, marketing and supply chain domination is another much more complicated story, but the seeds there go way back as well.
[/quote]

I have a pretty good understanding as well.  Most of Apple's undertakings were being carved from the ideas of others.  This includes the GUI, Mouse, MP3 Player, Smart Phone, Tablet, etc...  Jobs was a genius in putting things together in a simple, elegant form factor that was easy to use. 

True innovation at Apple includes:

1.  The thumb scroller on the iPod (huge navigation improvement - put MP3 players in the backseat)
2.  A true smart phone that included an APP store where independent developers could add to the "ecosystem"
3.  Ditching the 3-1/2" floppy drive
4.  Ditching the CD drive
5.  Ditching the speaker output connection
6.  Ditching anything that was not truly needed.  They are the best at ditching shit - That is actually a good thing.
7.  Simplifying and flattening all user experience (no need to go 6 layers deep to change a setting)
8.  Simplifying end user configuration inputs (some people don't like this, but the mass market does).
9.  "It just works"

Now I know there will be a long list of other things seemingly more important than the list above and I made this list a little "tongue-in-cheek".  My point is that Apple was never truly an innovator.  They were/are the best at integration of ideas and simplification of end user experience.  Some may say that is innovative.  I say it is more evolution than revolution. 

As far as the iPhone - That was no doubt the best integration of ideas into a first generation product that every happened and probably will ever happen. 

BobTheBuilder

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Re: Am I wrong to be invested in individual stocks?
« Reply #33 on: May 04, 2017, 01:44:55 PM »
I think it could be a good time to remember why you stashed all this money aside. So far you did your research, and it all worked out fine. However, even if you would not make any bad decisions given the available information, you might get badly burned and loose a considerable amount of your savings for good. Indexes don't go to zero unless the world ends. Individual companies do.

Also, this one line comes into my mind "The market can stay irrational longer than you can stay solvent" :-D

I recently witnessed a 30% decline in my all-time favourite stock, AMD. I am a communications engineer, I did my research. Quarterly earnings were ok, and yet the shares lost tremendously in 2 days. I believe it is because of overbuying by individual investors, big finance cashing in and then overselling. But whatever the cause, I can sit this one out. Anyways, I would not be so confident if I had more money invested in this one stock. I am in my investing learning phase (does it ever end) and realized what my tolerance for downturns is. I am a bit uneasy by now :-D

So, it is possible to increase your diversification by adding more companies, but:

1. Takes much time to observe 20 or more companies/stocks
2. Most of the combined index gain comes from few excessive individual gains by the underdogs, and the median stocks give worse than mean returns. Unless you own the complete index, you have a high probability on missing out on those outperformers.

So if you own 20 "good" stocks, you are most likely to make a bit less than the index in the long run, but still have higher risk and spend more time on it.
Personally, I get why you like to trade individual stocks, but the majority of your saving(s) might be better invested with semi-automation.

Maybe you could just set 80% of your equities money on indexing, and split the rest between few "fun" or research stocks?

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #34 on: May 05, 2017, 03:24:34 PM »
I think it could be a good time to remember why you stashed all this money aside. So far you did your research, and it all worked out fine. However, even if you would not make any bad decisions given the available information, you might get badly burned and loose a considerable amount of your savings for good. Indexes don't go to zero unless the world ends. Individual companies do.

Also, this one line comes into my mind "The market can stay irrational longer than you can stay solvent" :-D

I recently witnessed a 30% decline in my all-time favourite stock, AMD. I am a communications engineer, I did my research. Quarterly earnings were ok, and yet the shares lost tremendously in 2 days. I believe it is because of overbuying by individual investors, big finance cashing in and then overselling. But whatever the cause, I can sit this one out. Anyways, I would not be so confident if I had more money invested in this one stock. I am in my investing learning phase (does it ever end) and realized what my tolerance for downturns is. I am a bit uneasy by now :-D

So, it is possible to increase your diversification by adding more companies, but:

1. Takes much time to observe 20 or more companies/stocks
2. Most of the combined index gain comes from few excessive individual gains by the underdogs, and the median stocks give worse than mean returns. Unless you own the complete index, you have a high probability on missing out on those outperformers.

So if you own 20 "good" stocks, you are most likely to make a bit less than the index in the long run, but still have higher risk and spend more time on it.
Personally, I get why you like to trade individual stocks, but the majority of your saving(s) might be better invested with semi-automation.

Maybe you could just set 80% of your equities money on indexing, and split the rest between few "fun" or research stocks?
True.  I think the timing is the toughest part.  Ive made some great calls and stuck with winners for years only to 'get greedy'  when they finally started their moves.  Seeing a stock you believe in double in price can create an almost irresistable urge to 'guarantee a win' by selling half, for example.  My current rule is never sell unless i need the money.  For me that us the most mustacian wsy to hold individual stocks.

Completely agree. Trading stocks is a sure way to lose money.  Investing and holding long term produces the wins.  It takes a lot of discipline (more than I have at times for certain).  I've learned a lot of lessons in trading in and out of stocks.  All lessons came with a significant loss.

frugledoc

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Re: Am I wrong to be invested in individual stocks?
« Reply #35 on: May 05, 2017, 04:20:57 PM »
I think it could be a good time to remember why you stashed all this money aside. So far you did your research, and it all worked out fine. However, even if you would not make any bad decisions given the available information, you might get badly burned and loose a considerable amount of your savings for good. Indexes don't go to zero unless the world ends. Individual companies do.

Also, this one line comes into my mind "The market can stay irrational longer than you can stay solvent" :-D

I recently witnessed a 30% decline in my all-time favourite stock, AMD. I am a communications engineer, I did my research. Quarterly earnings were ok, and yet the shares lost tremendously in 2 days. I believe it is because of overbuying by individual investors, big finance cashing in and then overselling. But whatever the cause, I can sit this one out. Anyways, I would not be so confident if I had more money invested in this one stock. I am in my investing learning phase (does it ever end) and realized what my tolerance for downturns is. I am a bit uneasy by now :-D

So, it is possible to increase your diversification by adding more companies, but:

1. Takes much time to observe 20 or more companies/stocks
2. Most of the combined index gain comes from few excessive individual gains by the underdogs, and the median stocks give worse than mean returns. Unless you own the complete index, you have a high probability on missing out on those outperformers.

So if you own 20 "good" stocks, you are most likely to make a bit less than the index in the long run, but still have higher risk and spend more time on it.
Personally, I get why you like to trade individual stocks, but the majority of your saving(s) might be better invested with semi-automation.

Maybe you could just set 80% of your equities money on indexing, and split the rest between few "fun" or research stocks?
True.  I think the timing is the toughest part.  Ive made some great calls and stuck with winners for years only to 'get greedy'  when they finally started their moves.  Seeing a stock you believe in double in price can create an almost irresistable urge to 'guarantee a win' by selling half, for example.  My current rule is never sell unless i need the money.  For me that us the most mustacian wsy to hold individual stocks.

Completely agree. Trading stocks is a sure way to lose money.  Investing and holding long term produces the wins.  It takes a lot of discipline (more than I have at times for certain).  I've learned a lot of lessons in trading in and out of stocks.  All lessons came with a significant loss.

Of course, we have had a few stock gurus on these forums in the past.  It becomes apparent after a while they are only buying very small sums of money, like 500 - 1000 per stock.

With bigger chunks of money the risks and rewards of stock picking increase. 

pumpkinlantern

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Re: Am I wrong to be invested in individual stocks?
« Reply #36 on: May 05, 2017, 09:55:28 PM »
7-8 stocks seems really low for good diversification.

I think standard teaching is 15-25 stocks for large-cap, blue-chip stocks and as many as 50 stocks if you're buying small-cap, growth stocks.


DarthCreationist

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Re: Am I wrong to be invested in individual stocks?
« Reply #37 on: May 06, 2017, 03:57:09 AM »
I think it depends on your efforts how many different stocks you need. If you do your homework, research about companies, read annual reports and balance sheets, have a close look at their products and competitive advantage, why should you invest in your "500th best" company? In that case 10 stocks should be enough.

If you are fully content with average returns and don't want to have a lot of work, you buy S&P, of course.

Retire-Canada

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Re: Am I wrong to be invested in individual stocks?
« Reply #38 on: May 06, 2017, 08:20:59 AM »
I think it depends on your efforts how many different stocks you need. If you do your homework, research about companies, read annual reports and balance sheets, have a close look at their products and competitive advantage, why should you invest in your "500th best" company? In that case 10 stocks should be enough.

If you are fully content with average returns and don't want to have a lot of work, you buy S&P, of course.

When index funds outperform most active managers Those are "average" returns I'm happy to have. :)

https://www.bloomberg.com/news/articles/2017-04-09/lopsided-stocks-and-the-math-explaining-active-manager-futility

BobTheBuilder

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Re: Am I wrong to be invested in individual stocks?
« Reply #39 on: May 06, 2017, 09:38:09 AM »
Of course, we have had a few stock gurus on these forums in the past.  It becomes apparent after a while they are only buying very small sums of money, like 500 - 1000 per stock.

With bigger chunks of money the risks and rewards of stock picking increase.

Yes and yes. I own 105 of those, which is approx. $1100 by now. This 300$ downturn will look bad in book keeping for May, but other than that, I stick to my personal trading rules. Also, trading fees are relatively high until you reach at least 2000 per transaction. Which makes you reconsider every transacation once more.

True.  I think the timing is the toughest part.  Ive made some great calls and stuck with winners for years only to 'get greedy'  when they finally started their moves.  Seeing a stock you believe in double in price can create an almost irresistable urge to 'guarantee a win' by selling half, for example.  My current rule is never sell unless i need the money.  For me that us the most mustacian wsy to hold individual stocks.

Yes, the timing is what keeps you busy and can make it stressful.

Completely agree. Trading stocks is a sure way to lose money.  Investing and holding long term produces the wins.  It takes a lot of discipline (more than I have at times for certain).  I've learned a lot of lessons in trading in and out of stocks.  All lessons came with a significant loss.

As I started trading last year, I traded in a bull market. I made some money, but it could have been more if had just bought my 2 companies in March and not touched them for a year.

PaulMaxime

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Re: Am I wrong to be invested in individual stocks?
« Reply #40 on: May 06, 2017, 10:01:28 AM »
I think it depends on your efforts how many different stocks you need. If you do your homework, research about companies, read annual reports and balance sheets, have a close look at their products and competitive advantage, why should you invest in your "500th best" company? In that case 10 stocks should be enough.

If you are fully content with average returns and don't want to have a lot of work, you buy S&P, of course.

When index funds outperform most active managers Those are "average" returns I'm happy to have. :)

https://www.bloomberg.com/news/articles/2017-04-09/lopsided-stocks-and-the-math-explaining-active-manager-futility

Yeah that's true for professional money managers that have large expenses and are forced to manage for the most recent quarter and can't stray to far from the mainstream. Individual investors have a much better chance of outperforming, IMHO.

- We don't have to worry about moving the market when we buy underfollowed small cap stocks.
- We don't pay anyone any expense ratios - just our stock commissions which can be as low as $1.
- We can hold on to investments even if they have a bad quarter or year (no need to window dress for us)

Index funds are great. Most people I talk to I suggest an asset allocation strategy using Index funds and annual rebalancing. It's so much better than high cost finds and AUM fees.

But if you are interested and take some time (and possibly find a good source of stock research to amplify your efforts) you can actually beat the market as an individual. You have lots of advantages over those professional money managers. And if it's not working out for you, then fall back on index funds. The financial rewards of doing this can be significant.

Retire-Canada

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Re: Am I wrong to be invested in individual stocks?
« Reply #41 on: May 06, 2017, 10:05:54 AM »
But if you are interested and take some time (and possibly find a good source of stock research to amplify your efforts) you can actually beat the market as an individual. You have lots of advantages over those professional money managers. And if it's not working out for you, then fall back on index funds. The financial rewards of doing this can be significant.

Feel free to post your stock trades in real time so we can follow along and validate your claims.

Grande

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Re: Am I wrong to be invested in individual stocks?
« Reply #42 on: May 06, 2017, 10:07:03 AM »
I invested in individual stocks for about 10 years. Never a significant amount of money. I still have probably $100,000 in individual stocks. I have done better than the market, not every year but over the ten years. People here will swear I didn't because according to them it's impossible. It's not. It's just not worth the work. Furthermore, the market can be irrational in sense an undervalued stock can be seriously under priced for a long while. So you can be correct identifying a undervalued stock but it can stay undervalued for years before it corrects. It's impossible to know what triggers share price to rise. In my experience that's what hurts performance. These days I just don't care and have moved most money to index funds. That said I learned a tremendous amount investing and what moves a business and share price. So no regrets but at the same time I wouldn't recommend to anyone else and I probably would not do it again if I magically turned 25 years old again.


PaulMaxime

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Re: Am I wrong to be invested in individual stocks?
« Reply #43 on: May 06, 2017, 10:23:50 AM »
But if you are interested and take some time (and possibly find a good source of stock research to amplify your efforts) you can actually beat the market as an individual. You have lots of advantages over those professional money managers. And if it's not working out for you, then fall back on index funds. The financial rewards of doing this can be significant.

Feel free to post your stock trades in real time so we can follow along and validate your claims.


I'm happy to post my historical graph of my returns vs the market over the past 10 years. If you choose not to believe me that's fine.

Ocinfo

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Re: Am I wrong to be invested in individual stocks?
« Reply #44 on: May 06, 2017, 10:57:52 AM »
But if you are interested and take some time (and possibly find a good source of stock research to amplify your efforts) you can actually beat the market as an individual. You have lots of advantages over those professional money managers. And if it's not working out for you, then fall back on index funds. The financial rewards of doing this can be significant.

Feel free to post your stock trades in real time so we can follow along and validate your claims.


I'm happy to post my historical graph of my returns vs the market over the past 10 years. If you choose not to believe me that's fine.

How about for 20 or 30? The reason I ask is that for a full 8 years now it would have been hard to pick a loser unless it was a highly speculative pick. I say this as someone who holds multiple stocks bought over the last 10 years that are up 5x or more versus the market being up 3x. Also sold a couple that are up 10x or more and lost out in a lot of gains.

Individual stock picking is fine as part of a well diversified portfolio but really long term won't work out any better than a corresponding index for the vast majority of investors. We all look like geniuses during this 8 year bull market...


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PaulMaxime

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Re: Am I wrong to be invested in individual stocks?
« Reply #45 on: May 06, 2017, 12:09:43 PM »

I'm happy to post my historical graph of my returns vs the market over the past 10 years. If you choose not to believe me that's fine.

How about for 20 or 30? The reason I ask is that for a full 8 years now it would have been hard to pick a loser unless it was a highly speculative pick. I say this as someone who holds multiple stocks bought over the last 10 years that are up 5x or more versus the market being up 3x. Also sold a couple that are up 10x or more and lost out in a lot of gains.

Individual stock picking is fine as part of a well diversified portfolio but really long term won't work out any better than a corresponding index for the vast majority of investors. We all look like geniuses during this 8 year bull market...


Sent from my iPhone using Tapatalk

Unfortunately I only have detailed records starting in 2007. Which includes the ~50% haircut I took in 2008. And sure, since 2009 the market has been up up up but that doesn't make it any easier to outperform, necessarily. Anyway, my one anecdotal result doesn't really mean anything. I could just be lucky and that very well may be true.

But even the average mutual fund investor underperforms their own mutual funds.

https://www.fool.com/investing/general/2015/11/01/the-average-americans-investment-returns-and-how-y.aspx

So the fact that I've been able to ourperform the S&P 500 Total return index by 4% per year is probably partly luck and partly that I've learned, over a 30+ year investing career how to manage my behavior and emotions.

It's harder to do that with indivudual stocks than it is with index funds, so IMHO that's the key to why for many people Index investing is the best choice. It's hard to watch a stock drop by 80% but still hold on because you know it's actually a good business. It's also hard to not sell when something increases by 10X over your original investment but the prospects are still good so you hold on or even add more. I have one investment that is 51X my original purchase. It wasn't easy to hang on to it for all this time.

IF you can control your behavior, I believe that individual stock investing is superior to index funds. That also implies that it is something you are interested in and that you are willing to spend the required time and effort. The payoff can be large.

Index fund investing is no panacea though. Behavior outweighs low fees and broad diversification. If you can control your emotions you will outperform most professional investors by doing it this way, so great.

Me posting my stock trades in real time would be really boring, since I tend to buy and hardly ever sell. My longest stock position is 18 years old. I plan on holding it forever.



jjandjab

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Re: Am I wrong to be invested in individual stocks?
« Reply #46 on: May 06, 2017, 05:04:12 PM »
Based on the original post and the replies, this should have been titled

"I think well-researched stock picking is better than index or mutual fund investing".

There is no question you have done better than the market based on your information.

And there is no question that you believe you are right no matter what and will continue on as before. 

frugal_c

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Re: Am I wrong to be invested in individual stocks?
« Reply #47 on: May 06, 2017, 07:35:30 PM »
Normally I wouldn't think this is a good idea but you have an approach that makes sense to me.  You also have the results to back it up.  I think if you can stick with high quality stocks you will do well in the long run.  If the research to identify that group of stocks is such that you can only find 6 or 7 then so be it.

In general, I think if you are going to invest in individual stocks you should limit yourself to a small number of high quality companies that you understand and have researched.  Otherwise it is index funds.  Investing in larger numbers of individual stocks doesn't make sense to me.   I personally hedge and do mostly index funds with a small allocation (15-20%) to a small number of stocks (currently I have 6).  I have found I can beat the market by a small amount but certainly nothing like what you have seen.
« Last Edit: May 06, 2017, 07:40:37 PM by frugal_c »

Cache_Stash

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Re: Am I wrong to be invested in individual stocks?
« Reply #48 on: May 08, 2017, 07:30:51 AM »

I'm happy to post my historical graph of my returns vs the market over the past 10 years. If you choose not to believe me that's fine.

How about for 20 or 30? The reason I ask is that for a full 8 years now it would have been hard to pick a loser unless it was a highly speculative pick. I say this as someone who holds multiple stocks bought over the last 10 years that are up 5x or more versus the market being up 3x. Also sold a couple that are up 10x or more and lost out in a lot of gains.

Individual stock picking is fine as part of a well diversified portfolio but really long term won't work out any better than a corresponding index for the vast majority of investors. We all look like geniuses during this 8 year bull market...


Sent from my iPhone using Tapatalk

Unfortunately I only have detailed records starting in 2007. Which includes the ~50% haircut I took in 2008. And sure, since 2009 the market has been up up up but that doesn't make it any easier to outperform, necessarily. Anyway, my one anecdotal result doesn't really mean anything. I could just be lucky and that very well may be true.

But even the average mutual fund investor underperforms their own mutual funds.

https://www.fool.com/investing/general/2015/11/01/the-average-americans-investment-returns-and-how-y.aspx

So the fact that I've been able to ourperform the S&P 500 Total return index by 4% per year is probably partly luck and partly that I've learned, over a 30+ year investing career how to manage my behavior and emotions.

It's harder to do that with indivudual stocks than it is with index funds, so IMHO that's the key to why for many people Index investing is the best choice. It's hard to watch a stock drop by 80% but still hold on because you know it's actually a good business. It's also hard to not sell when something increases by 10X over your original investment but the prospects are still good so you hold on or even add more. I have one investment that is 51X my original purchase. It wasn't easy to hang on to it for all this time.

IF you can control your behavior, I believe that individual stock investing is superior to index funds. That also implies that it is something you are interested in and that you are willing to spend the required time and effort. The payoff can be large.

Index fund investing is no panacea though. Behavior outweighs low fees and broad diversification. If you can control your emotions you will outperform most professional investors by doing it this way, so great.

Me posting my stock trades in real time would be really boring, since I tend to buy and hardly ever sell. My longest stock position is 18 years old. I plan on holding it forever.

You pretty much mirror my experience.  I agree with everything above.  It can be done, but most people don't have the risk appetite nor do they invest enough time.  I would say only about 1 in 100 people ought to be doing it.  It takes a toll, as well.

Money managers, as stated in other posts above, have quite a bar to get over.  Additional items in which they have to contend and individual investors don't:

- They normally can't utilize more than 5% of the fund value to invest in any individual stock.  If this is exceeded they have no choice but to sell some shares to get back under. This can hurt their allocation on their true winners with the added impact of selling some of it too soon.

-  They normally can't buy more than a 5% stake in a company.  This keeps them out of the small cap market because most of those stocks could do really well but won't move the needle on 10 BUSD in investments.  Just a waste of time to even try.

- Because of the enormity of they capital they have to invest, they are sometimes faced with deciding between the lesser of two evil stocks (which one is not as bad as the other).  I know I didn't phrase this quite right, but my point is they are purchasing so many stocks that they are dipping into the lesser quality companies and taking more risk exposure than the individual investor would.

I'm sure there are many more, but the bar set for them is too high (weighing in against an index). 


DarthCreationist

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Re: Am I wrong to be invested in individual stocks?
« Reply #49 on: May 08, 2017, 07:56:17 AM »
I think it is perfectly valid to be happy with average market returns, have no work with that and basically no real long-term risks. I can understand everyone who only invests in index funds.

What annoys me is the overly confident and almost arrogant "certain knowledge" that it should be impossible to beat the market. It is very easy to beat the market, it just requires work. For example, in the German DAX there is BMW, but not BMW preferred stocks. Obviously, putting preferred stocks in your DAX portfolio would already outperform the DAX. There you have prove you can beat the index.

You can fare even better if you do your research and invest in only the "better" 15 of the 30 DAX companies. Why would you invest in your 30th-favorite stock? Some companies obviously have problems, for example the ones that produce power from coal. In Germany, it's not quite likely we will get a government that promises to bring back the glory of coal. Just by leaving out the obvious misfits, you can outperform the market. The more knowledgeable you are, the more you can focus. I prefer to be on the more diversified side for now.