Single stocks predictable forced depreciation

[Kem]

Beginning this year I began using my $500/M roth Ira contributions for stock buys and will continue to do so, so long as this remains profitable.  If I begin to lose I'll switch back to paper trades (which I ran for 5 years prior).

Why take the risk on the lowly $500/m contributions?
 
With the explosion of index fund & ETF popularity in the last decade (200M to 1.5T held! ) everytime the broader market sneezes perfectly sound companies go on a fi/re sale (where I buy) and when the market flares many of these go higher than is rational (where I sell 1/2 for zero taxable gains). 

Ive gained $5K so far this year on these dollars (after accounting for a couple companies that hit stop losses)

Note that the vast majority of my equities are in VTI and the majority of my monthly investment funds now go into a taxable VTI rather than a tax deffered or sheltered account.  The roth contributions make up a minor portion of my investment pool.

[bacchi]

The US stock market is capitalized at $26T.

1.5/26 = 5.8%

[Kem]

Cheers.  And maybe I'm seeing correlation that doesn't exist as strongly as it appears.  I have no plan to change keeping most of my equity funds in VTI.  5.8% weight is certainly minor.   Still, it'll be interesting if the experiment continues to bear fruit with time.

[MustacheAndaHalf]

That sounds like value investing.  When the P/E multiples are too high, you might sell... and buy when multiples are low (even for specific companies).

[Kem]

Exactly so - what I'm curious about is if the value swings are greater on individual indexed companies due to swings on Indicies due to the much greater dollar value of folks holding ETFs - - - or if I've just been lucky and seeing Eddie's in a smokescreen.

It sure takes a lot of research and tracking of these tickers.
From what I see there are 3 risks
1 - a market for an individual equity becomes illiquid and a stop loss is not triggered wiping out the gains over time.
2 - returns over time lessen below market performance and ego, addiction, or habit causes a delay in switching back to VTI only
3 - as a portfolio of tickers grow, complacency with monitoring lessens and appropriate choices are neglected.

(again note, this only represents a small minority of my holdings / contributions)

[Indexer]

With the explosion of index fund & ETF popularity in the last decade (200M to 1.5T held! ) everytime the broader market sneezes perfectly sound companies go on a fi/re sale (where I buy) and when the market flares many of these go higher than is rational (where I sell 1/2 for zero taxable gains). 

Individual companies moving with the overall market was a thing long before index funds came into existence so it's not due to indexing.


In addition, since very few stocks account for the return of the market you are much more likely to underperform the market than outperform when you concentrate in a few holdings.

From 1987 to 2017 the median stock performed 7%. That's cumulative returns over the whole period, not an annual number. However, the average stock returned a cumulative 387% over the same period. The reason for the difference is that a few companies did amazingly well, over 1000% growth, while about 47% of companies had negative returns.

Source: https://personal.vanguard.com/pdf/ISGITO.pdf

[Kem]

Good share.

I think I'll place my 6 months worth of contributions and future roth ira contributions into VTI to match my typical investments ...

And use the 6 months worth of gains to keep the single buys test going.

Best regards

[wageslave23]

With the explosion of index fund & ETF popularity in the last decade (200M to 1.5T held! ) everytime the broader market sneezes perfectly sound companies go on a fi/re sale (where I buy) and when the market flares many of these go higher than is rational (where I sell 1/2 for zero taxable gains). 

Individual companies moving with the overall market was a thing long before index funds came into existence so it's not due to indexing.


In addition, since very few stocks account for the return of the market you are much more likely to underperform the market than outperform when you concentrate in a few holdings.

From 1987 to 2017 the median stock performed 7%. That's cumulative returns over the whole period, not an annual number. However, the average stock returned a cumulative 387% over the same period. The reason for the difference is that a few companies did amazingly well, over 1000% growth, while about 47% of companies had negative returns.

Source: https://personal.vanguard.com/pdf/ISGITO.pdf

Great info!

[catorbe]

Indexes move because the collection of individual stocks move. Not the other way around. Correct me if I'm wrong because then I'm missing something big.

[bacchi]

Indexes move because the collection of individual stocks move. Not the other way around. Correct me if I'm wrong because then I'm missing something big.

The index moves according to the stocks in the index but an index fund moves according to inflow and outflow. Any inflow means the index fund has to go out and purchase corresponding shares.

[catorbe]

Indexes move because the collection of individual stocks move. Not the other way around. Correct me if I'm wrong because then I'm missing something big.

The index moves according to the stocks in the index but an index fund moves according to inflow and outflow. Any inflow means the index fund has to go out and purchase corresponding shares.

So i wasn't necessarily wrong but wasn't quite on the same page. Thanks for the explanation!