Author Topic: Analysis - I Should Have Bought Index Funds.  (Read 3785 times)

SnackDog

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Analysis - I Should Have Bought Index Funds.
« on: March 29, 2014, 01:06:40 PM »
I have had a modest "play" portfolio of individual stocks since about 2005.  I have had some ups and downs, but overall it has done well, at least according to typical online tools for examining performance.  I have been happy with stocks like Apple, Google, Berkshire, etc but also had a couple dogs like HP and Cisco (which I still own because they are bouncing back).  I have a strong "hunting" mentality - for me the fun is in finding stocks and purchasing them.  After that, I sort of lose interest and am on to the next one.  Since 2005 I have only given up and sold one net loser: Blackberry. Ouch.  The total count today is about 20 stocks.

The stocks are invested with Vanguard but I also have used other (easier) tools for monitoring performance which mostly show absolute appreciation since purchase but are not so good at showing annualized rates and/or comparing to common indices such as the S&P500.   I have always wanted to do this myself in Excel but didn't want to pay for the plug-ins to pull in stock quotes (and definitely don't enjoy entering quotes manually).  With Excel 2013, it is a feature so I thought I would try it.  I calculated the total and annualized rate of return for each stock and for the whole portfolio.  Then I compared it to a low cost index fund: VTSAX.  I compared the current value of each stock to the "opportunity cost" - an equivalent quantity of VTSAX as if I had purchased it the same day.   

The result?  Essentially the same rate of return for my portfolio as for VTSAX.  The stocks did return a (taxable) dividend but that was more or less offset by the Blackberry loss. 

My conclusion?  Stock picking is fun and hasn't "cost" me anything relative to a decent index fund the last decade or so.  I may have been lucky (or unlucky - I sold 800 shares of Apple in 2005!!!).  I also realized several stocks I own which are well in the black have trailed the index, so maybe I should dump them if I don't see greater potential ahead.  Duh. 

Then again, maybe my time is better spent on things which are even more fun than on screwing around with individual stocks.

luna

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Re: Analysis - I Should Have Bought Index Funds.
« Reply #1 on: March 29, 2014, 01:12:41 PM »
You should probably do this again and include the dividends. They often make up half of the profit for a particular stock.

Most funds will allow you to purchase new shares for the dividends, or get it as money (taxable event in either case).

foobar

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Re: Analysis - I Should Have Bought Index Funds.
« Reply #2 on: March 29, 2014, 08:51:49 PM »
Replace your apple gains with something like Nokia and see how much the performance of your portfolio changes. Obviously it works both ways but that will give you an example of how slight changes can drastically affect your variance. You want great performance: Pick a couple of stocks and hope you picked well. You want decent performance, own the market. You will never be a top 1% performer but you will also never be in the bottom 25% either.

I have had a modest "play" portfolio of individual stocks since about 2005.  I have had some ups and downs, but overall it has done well, at least according to typical online tools for examining performance.  I have been happy with stocks like Apple, Google, Berkshire, etc but also had a couple dogs like HP and Cisco (which I still own because they are bouncing back).  I have a strong "hunting" mentality - for me the fun is in finding stocks and purchasing them.  After that, I sort of lose interest and am on to the next one.  Since 2005 I have only given up and sold one net loser: Blackberry. Ouch.  The total count today is about 20 stocks.

The stocks are invested with Vanguard but I also have used other (easier) tools for monitoring performance which mostly show absolute appreciation since purchase but are not so good at showing annualized rates and/or comparing to common indices such as the S&P500.   I have always wanted to do this myself in Excel but didn't want to pay for the plug-ins to pull in stock quotes (and definitely don't enjoy entering quotes manually).  With Excel 2013, it is a feature so I thought I would try it.  I calculated the total and annualized rate of return for each stock and for the whole portfolio.  Then I compared it to a low cost index fund: VTSAX.  I compared the current value of each stock to the "opportunity cost" - an equivalent quantity of VTSAX as if I had purchased it the same day.   

The result?  Essentially the same rate of return for my portfolio as for VTSAX.  The stocks did return a (taxable) dividend but that was more or less offset by the Blackberry loss. 

My conclusion?  Stock picking is fun and hasn't "cost" me anything relative to a decent index fund the last decade or so.  I may have been lucky (or unlucky - I sold 800 shares of Apple in 2005!!!).  I also realized several stocks I own which are well in the black have trailed the index, so maybe I should dump them if I don't see greater potential ahead.  Duh. 

Then again, maybe my time is better spent on things which are even more fun than on screwing around with individual stocks.

kyleaaa

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Re: Analysis - I Should Have Bought Index Funds.
« Reply #3 on: March 31, 2014, 07:06:54 AM »
I had pretty much the same experience, which is why I became an index adherent.

Roland of Gilead

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Re: Analysis - I Should Have Bought Index Funds.
« Reply #4 on: March 31, 2014, 07:21:44 AM »
As I have mentioned in other threads I also buy index funds in our main accounts but my play money account has quite outperformed the index for the past decade.  I never had any huge winners or huge losers, although the account had bad years and good years.

In 2001 I started it with less than $1700 (IRA) and today it is $45,000 but I did not really actively trade in it until 2004.  Initially I had 50 or so shares of Exxon but sold those when I started trading.  Had I just kept that along with dividends it would have done pretty well, but probably only be worth $6,000 or so.

I do a lot of call selling on volatile stocks like Apple.  This involves somewhat complicated things like buying Apple leaps when the stock is $400 and selling out of the money calls at a nearer date for, say $500.  You end up in a situation where it is very hard to lose everything, even if Apple falls below $400 because you can resell near term calls on the increased volatility.

Unfortunately or fortunately $45,000 in an IRA isn't a lot compared to our other investments, which are in index funds and have grown quite well also, with no work.   It is fun trading though.

SnackDog

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Re: Analysis - I Should Have Bought Index Funds.
« Reply #5 on: March 31, 2014, 10:17:37 AM »
If you turned $1,700 into $45,000 between 2001 and 2014 you returned an average of 29% per year. That makes you possibly one of the best money managers of all time!  Bruce Berkowitz has averaged 12% per year.  You also beat Warren Buffet and Peter Lynch!
« Last Edit: March 31, 2014, 11:16:44 AM by SnackDog »

Roland of Gilead

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Re: Analysis - I Should Have Bought Index Funds.
« Reply #6 on: March 31, 2014, 10:27:14 AM »
If you turned $1,700 into $45,000 between 2001 and 2004 you returned an average of 29% per year. That makes you possibly one of the best money managers of all time!  Bruce Berkowitz has averaged 12% per year.  You also beat Warren Buffet and Peter Lynch!

It is only $45,000 though.   The only reason I did it was because the $1700 came from a 401K plan at a company I only worked for a short while and I had to roll it over to E-trade.  I figured, what the heck, let's play with this a little bit.

It would have been nice if it was $17,000 turned into $450,000 but then I probably would not have taken the same risks and gotten the reward.

SnackDog

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Re: Analysis - I Should Have Bought Index Funds.
« Reply #7 on: March 31, 2014, 11:18:36 AM »
Just keep up whatever your doing. In another dozen years your $45,000 will be $1MM.

Roland of Gilead

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Re: Analysis - I Should Have Bought Index Funds.
« Reply #8 on: March 31, 2014, 11:22:26 AM »
Just keep up whatever your doing. In another dozen years your $45,000 will be $1MM.

Well I was actually thinking of stopping trading (the account is all cash now) as we will be losing internet next year while boondocking.  Probably going to just shove it into index funds along with the rest of our investments.