Author Topic: Stock picking vs Indexing  (Read 2426 times)

Stash Man

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Stock picking vs Indexing
« on: July 04, 2021, 10:35:21 PM »
Are you a pure indexer, a pure stock picker, or do you do both?

For those in the second and third categories, what are your reasons for not going 100% index despite the evidence suggesting that indexing is the way to go?  And what is your strategy?

CBECH22

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Re: Stock picking vs Indexing
« Reply #1 on: July 09, 2021, 02:44:27 PM »
I personally enjoy doing both.  I am not a high-risk player, as I hate risk, but I do enjoy purchasing a stock I like for multiple reasons:

1.  I like the companies product and use it myself, so I like to own the stock (Of course I make sure I feel comfortable with the financials of the company)
2.  I see upside in the company.  It may not be a long-term play, but something to try and make a quick buck.
3.  I think the stock is a good price, so I want to buy it as I see it will increase long term.

My portfolio mostly contains ETF's and indexes, but these are a few reasons my portfolio contains both.

GuitarStv

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Re: Stock picking vs Indexing
« Reply #2 on: July 09, 2021, 02:55:34 PM »
Index only.

brellis1vt

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Re: Stock picking vs Indexing
« Reply #3 on: July 09, 2021, 03:04:33 PM »
I'm have almost 100% invested in INDEX funds. When I was younger I educated myself on stock picking and started investing in stocks.  I wasn't great at it, didn't enjoy the work involved, and no longer had the time after kids.  So I switched to Index funds but still have a very small "fun money account" that I use to buy speculative stocks and Bitcoin.  Financially, it's not the best plan but keeps me interested in the market and that has proven valuable for me in the past.

RunningintoFI

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Re: Stock picking vs Indexing
« Reply #4 on: July 09, 2021, 07:39:15 PM »
I do both but only with about 1.5% of my portfolio in stock picking.  It's entirely for fun as it gives my friends and I something to banter back and forth about all day long.  It's basically another version of fantasy sports for us, which is the most 1st world statement one can type out.   

RWD

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Re: Stock picking vs Indexing
« Reply #5 on: July 09, 2021, 09:45:07 PM »
100% index funds.

theolympians

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Re: Stock picking vs Indexing
« Reply #6 on: July 10, 2021, 12:22:28 AM »
Historically, index only. It has served me VERY well in my 403(b). This year, I have delved into stock picking within an IRA. I find it more intensive, stressful, emotional. I have not seen any real gains with stock picking. I retained an index fund within the IRA and it is out performing me these past months.

I plan to continue to stock pick with the funds I have invested for that specific purpose (small percentage of NW) for a few more months. My recommendation is to index. You will look back in twenty years of steady contributions and be pleased.

Ryo

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Re: Stock picking vs Indexing
« Reply #7 on: July 10, 2021, 03:25:40 AM »
About 6% of my portfolio consists of individual stock picks while 70% is in indexes. The individual stocks are there purely to bring some excitement into investing. I think a lot more about that 6% than the 70%, which is obviously a very inoptimal allocation of brain power, but it scratches an itch.

vand

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Re: Stock picking vs Indexing
« Reply #8 on: July 10, 2021, 05:27:29 AM »
Of my equity exposure

40% individual stocks
35% active funds
25% index trackers

Stash Man

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Re: Stock picking vs Indexing
« Reply #9 on: July 11, 2021, 11:23:20 PM »
I'm of the opinion that even though active fund managers can't beat the index, it doesn't necessarily follow that picking stocks is a fool's errand. Because the ability to pick winning stocks doesn't translate into the ability, or the desire, to build a winning portfolio. To beat the market, a portfolio can't have too many stocks, maybe 10 tops. The more stocks you have in a portfolio, the closer it'll behave like the index (before fees etc). A fund manager may very well have the ability to pick 1 or 2 winning stocks a year, but such a manager will have a hard time convincing clients to invest with them. It's more profitable for a fund manager to invest conventionally.

If one is disciplined enough to buy individual stocks only on the occasions that they fully understand, it seems to me a sensible strategy as long as it is balanced with index funds.

PDXTabs

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Re: Stock picking vs Indexing
« Reply #10 on: July 11, 2021, 11:57:26 PM »
I'm 99% index 1% stock picking. I don't think that stock picking is bad per se, but I don't really count that money as investment. More like gambling.

ChpBstrd

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Re: Stock picking vs Indexing
« Reply #11 on: July 12, 2021, 09:15:10 AM »
I have a few tens of thousands invested in a handful of preferred stocks yielding around 6%. I had started to build a dividend portfolio back in May 2020 when the yields were closer to 8% but never completed the project before preferreds snapped back up to their pre-pandemic values. I should probably sell these but theyíre so low-drama Iím unmotivated.

I moved most of my portfolio into the triple-levered index ETFs TQQQ and UPRO in early April. I do not claim this represents index investing, but itís also not stock picking. Back when volatility was higher, I was selling a few hundred dollars per week in call options, but now options are too cheap to bother.

Itís a wild ride, where I routinely lose and gain five figure amounts per day, and six figure amounts per month. I judge that Bidenís election, the latest stimulus (the first monthly child credit payments go out this week!), and most of all the rollout of vaccines to the most economically productive classes will result in at least two years of positive markets. Meanwhile, the US will remain in a state of disinflationary undertow as external demand for dollars continues to sop up the trade and budget deficits. Even the most hawkish Fed officials are talking about -maybe- tapered their current $120B/mo bond/mortgage purchases -maybe- as soon as late next year, and not touching interest rates for the foreseeable future. Things have not been this good since 2010, so Iím all in and then some.

Iím also stock picking NVO by owning a couple of call options on it. They just started selling an existing, fully tested weight loss drug that is getting accolades. Iím up 18% so far.

Glenstache

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Re: Stock picking vs Indexing
« Reply #12 on: July 12, 2021, 09:31:03 AM »
I do both but only with about 1.5% of my portfolio in stock picking.  It's entirely for fun as it gives my friends and I something to banter back and forth about all day long.  It's basically another version of fantasy sports for us, which is the most 1st world statement one can type out.   
I appreciate the self-awareness in this post. I have a friend who FIREd, was a financial advisor (aka, did this stuff everyday for a living) and did something on the order of 10% of his portfolio as stock picks. I asked him if he was able to match or outperform his indexed investments. Nope.

boarder42

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Re: Stock picking vs Indexing
« Reply #13 on: July 12, 2021, 09:35:15 AM »
100% index. But I use small value indexes as opposed to the sp500 for various reasons.

index

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Re: Stock picking vs Indexing
« Reply #14 on: July 12, 2021, 09:37:04 AM »
I am 10% BRK.B...

whywork

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Re: Stock picking vs Indexing
« Reply #15 on: July 12, 2021, 10:52:58 AM »
30% in FAANG stocks
70% in Index (QQQ)

I made a point not to buy individual stocks except FAANG.

I know of friends who have all their money in FAANG stocks. It's not a bad idea. But I don't feel comfy doing 100%

dougules

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Re: Stock picking vs Indexing
« Reply #16 on: July 12, 2021, 01:45:02 PM »
Vast majority index funds here.  I do have a small portion of my investments in individual stocks, but it's just because I wanted to have a little bit of ownership in a few companies I liked. 

Telecaster

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Re: Stock picking vs Indexing
« Reply #17 on: July 12, 2021, 07:04:34 PM »
I added up my individual stock percentage and was surprised to see it was 41%.  I didn't realize it was that high. 

MustacheAndaHalf

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Re: Stock picking vs Indexing
« Reply #18 on: July 13, 2021, 10:21:37 AM »
30% in FAANG stocks
70% in Index (QQQ)

I made a point not to buy individual stocks except FAANG.

I know of friends who have all their money in FAANG stocks. It's not a bad idea. But I don't feel comfy doing 100%
Are you okay with 50% FAANG stocks?  QQQ is almost 1/3rd FAANG stocks, so half your portfolio is in those 5 companies.

rmorris50

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Re: Stock picking vs Indexing
« Reply #19 on: July 13, 2021, 10:29:41 AM »
So I have about 20% of my investments in a managed separate account, where the advisor picks and manages 20 dividend growth stocks. So I donít stock pick myself.

Over the past decade it has performed marginally better than major index funds, but nothing crazy that would say investing in one versus the other is better.

Some of the more well known stocks in my MSA is Nike, Starbucks, Loweís, UHC, Canadian Railway Company, and Zoetis.


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boarder42

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Re: Stock picking vs Indexing
« Reply #20 on: July 13, 2021, 11:00:59 AM »
30% in FAANG stocks
70% in Index (QQQ)

I made a point not to buy individual stocks except FAANG.

I know of friends who have all their money in FAANG stocks. It's not a bad idea. But I don't feel comfy doing 100%
Are you okay with 50% FAANG stocks?  QQQ is almost 1/3rd FAANG stocks, so half your portfolio is in those 5 companies.

Recency bias man it's really tough to get over what's been winning the last decade.

hodedofome

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Re: Stock picking vs Indexing
« Reply #21 on: July 13, 2021, 08:40:24 PM »
Best thing I ever did for my net worth was sell all my index funds in 2019 and put 100% of my money in SAAS stocks, which I knew very well. Net worth is up almost 2.5x since then. I donít recommend others do the same thing though.

RWD

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Re: Stock picking vs Indexing
« Reply #22 on: July 13, 2021, 08:46:48 PM »
Best thing I ever did for my net worth was sell all my index funds in 2019 and put 100% of my money in SAAS stocks, which I knew very well. Net worth is up almost 2.5x since then. I donít recommend others do the same thing though.
Our net worth is up 2.1x since January 2019, index funds only.

Zamboni

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Re: Stock picking vs Indexing
« Reply #23 on: July 13, 2021, 09:02:40 PM »
Index only.

Oh, except my son talked me into putting $50 into a new Robinhood account in the spring with some fractional share picks so he could get the referral code bonus . . . and now that is down to $32 thanks to some stellar picking by us. Eyeroll.

Gonna stick to indexing.

whywork

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Re: Stock picking vs Indexing
« Reply #24 on: July 14, 2021, 09:33:06 AM »
Are you okay with 50% FAANG stocks?  QQQ is almost 1/3rd FAANG stocks, so half your portfolio is in those 5 companies.

You have a good point, I sometimes worry about that. But I can't hold SPY when QQQ is outperforming it. I'm still in growth / accumulation phase. Once my NW reaches a big enough level, I'll move to more SPY.

Also BRK.B has 40% in single stock, AAPL. So maybe these FAANGs are safer than we think.

bwall

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Re: Stock picking vs Indexing
« Reply #25 on: July 14, 2021, 10:48:25 AM »
If you're going to stock pick, then you have to take a page out of Ted Wiliams' playbook and 'wait for your pitch'. Williams was the last batter in MBL history to hit over .400 for the entire season, finishing 1941 season at .406.

That's what stock picking is. Have your money in cash, or a cash-like instrument that won't go down in value and wait. And wait. and wait. Then, when the pitch that you've been looking for comes, go all-in.

You've got to look and find that hidden gem, the one that everyone else, aka 'the market', is overlooking. You've got to see something that the market doesn't see, something that is hiding in plain sight. To do this, you need an edge, some sort of special knowledge that most people are unaware of or routinely discount. 

Most people can't do this because:

1) It takes discipline. In an undisciplined world of instant gratification, waiting is really hard.
2) It takes analysis. Most people have no idea how to analyze anything, much less a company & the underlying stock.
3) It takes an exit strategy. You have to know when there is nothing left in the stock and it's time to move on. 

These traits can be practiced and results improved, but, the learning curve can be steep. Thus, I generally recommend indexing to anyone who asks.

Telecaster

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Re: Stock picking vs Indexing
« Reply #26 on: July 14, 2021, 12:18:08 PM »
If you're going to stock pick, then you have to take a page out of Ted Wiliams' playbook and 'wait for your pitch'. Williams was the last batter in MBL history to hit over .400 for the entire season, finishing 1941 season at .406.

That's what stock picking is. Have your money in cash, or a cash-like instrument that won't go down in value and wait. And wait. and wait. Then, when the pitch that you've been looking for comes, go all-in.

You've got to look and find that hidden gem, the one that everyone else, aka 'the market', is overlooking. You've got to see something that the market doesn't see, something that is hiding in plain sight. To do this, you need an edge, some sort of special knowledge that most people are unaware of or routinely discount. 

Most people can't do this because:

1) It takes discipline. In an undisciplined world of instant gratification, waiting is really hard.
2) It takes analysis. Most people have no idea how to analyze anything, much less a company & the underlying stock.
3) It takes an exit strategy. You have to know when there is nothing left in the stock and it's time to move on. 

These traits can be practiced and results improved, but, the learning curve can be steep. Thus, I generally recommend indexing to anyone who asks.

I agree with all your points.  I take a hybrid approach.  I'm in accumulation phase so I'm making regular contributions.  If there is a fat pitch stock when I'm ready to invest, I take a swing.  If not, I go with the index. 

The thing about fat pitches is that they are fat because they are lagging the market.  Which means you might be lagging the market and it is unpleasant to watch other stuff go up which your stuff just sits there.   Hence it is very important to understand what you are doing and why you are doing it. 

Telecaster

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Re: Stock picking vs Indexing
« Reply #27 on: July 14, 2021, 12:29:35 PM »
You have a good point, I sometimes worry about that. But I can't hold SPY when QQQ is outperforming it. I'm still in growth / accumulation phase. Once my NW reaches a big enough level, I'll move to more SPY.

Also BRK.B has 40% in single stock, AAPL. So maybe these FAANGs are safer than we think.

AAPL is about 20%of BRK's market cap.   But a lot of that is because the price has appreciated by an amazing amount since they bought it. And BRK owns lots of other stuff that isn't publicly traded.   

I think the FAANG companies themselves are safe enough, but hearken back to the late 1990s when the Nasdaq was obliterating the S&P.   When the music stopped it took a couple decades for the Nasdaq to catch back up.   

boarder42

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Re: Stock picking vs Indexing
« Reply #28 on: July 14, 2021, 01:09:43 PM »
You have a good point, I sometimes worry about that. But I can't hold SPY when QQQ is outperforming it. I'm still in growth / accumulation phase. Once my NW reaches a big enough level, I'll move to more SPY.

Also BRK.B has 40% in single stock, AAPL. So maybe these FAANGs are safer than we think.

AAPL is about 20%of BRK's market cap.   But a lot of that is because the price has appreciated by an amazing amount since they bought it. And BRK owns lots of other stuff that isn't publicly traded.   

I think the FAANG companies themselves are safe enough, but hearken back to the late 1990s when the Nasdaq was obliterating the S&P.   When the music stopped it took a couple decades for the Nasdaq to catch back up.

Be fearful when others are greedy. Be greedy when others are fearful.

QQQ and fang fit the first portion of this. So does the sp500 for that matter.

Christof

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Re: Stock picking vs Indexing
« Reply #29 on: July 14, 2021, 01:36:39 PM »
My approach is

40% ist indexing mostly some version of the MSCI World index as well as EM indexes.

40% is totally random. I have a list of shares I can purchase with any of my brokers, roll the dice electronically, and buy whatever came up providing the share has been traded several time in the past month and the spread is below 15%. The idea behind this is that buying randomly approaches being invested into the market without being exposed to the same risk as investing into the MSCI world index.

20% is some sort of active investment where I try different strategies like dividend investment, keeping cash, crypto, stock picking, gold, angel investment, private equity, or whatever else I come across. It also serves as a validation that it is better for me to keep 80% of my investments in instruments IĎm not choosing actively.

utaca

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Re: Stock picking vs Indexing
« Reply #30 on: July 15, 2021, 08:31:07 AM »
I pick enough stock (say around 1% of my invested funds) to remind me that I suck at stock picking and should index only. 

talltexan

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Re: Stock picking vs Indexing
« Reply #31 on: July 15, 2021, 09:09:41 AM »
I select some individual stocks, but I sell puts to try to reduce the risk associated with it. So far, I'm definitely behind where I'd be if I just bought the shares in blocks of 100.

MustacheAndaHalf

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Re: Stock picking vs Indexing
« Reply #32 on: July 15, 2021, 10:18:05 AM »
...
I think the FAANG companies themselves are safe enough, but hearken back to the late 1990s when the Nasdaq was obliterating the S&P.   When the music stopped it took a couple decades for the Nasdaq to catch back up.

Be fearful when others are greedy. Be greedy when others are fearful.

QQQ and fang fit the first portion of this. So does the sp500 for that matter.
The S&P 500 and QQQ have returned 16% YTD, and we're just over halfway through the year.  I don't see the fear involved in that investment - if anything, I would expect greedy people to pile on to the 16% return in half a year.


Visitation

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Re: Stock picking vs Indexing
« Reply #33 on: July 15, 2021, 10:25:42 AM »
Indexing.  History has proven that I'm a terrible stock picker.

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boarder42

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Re: Stock picking vs Indexing
« Reply #34 on: July 15, 2021, 11:26:06 AM »
...
I think the FAANG companies themselves are safe enough, but hearken back to the late 1990s when the Nasdaq was obliterating the S&P.   When the music stopped it took a couple decades for the Nasdaq to catch back up.

Be fearful when others are greedy. Be greedy when others are fearful.

QQQ and fang fit the first portion of this. So does the sp500 for that matter.
The S&P 500 and QQQ have returned 16% YTD, and we're just over halfway through the year.  I don't see the fear involved in that investment - if anything, I would expect greedy people to pile on to the 16% return in half a year.

So you're proving my point thanks.

 

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