Author Topic: Want to buy more individual stocks now instead of usual Vanguard - sensible?  (Read 1271 times)

drshadowsherlock

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Late 20's based in the UK and have been investing for ~ 3 years. So far, I have been investing ~20% of my salary directly into a vanguard all world tracker fund automatically and not doing anything about it.

Recently, I have have the itch to go for it with some individual stocks. I decided to split my investments into 80% straight into passive vanguard tracker, and 20% active into companies that I feel are ever-green and will only continue to rise (essentially Apple and Microsoft).

With this downturn, I am now in two minds with my investing allocation. Part of me wants to buy more individual stocks, thinking when they come back up, they will come back up sharply. The other part of me thinks I should just keep doing what I have been doing and buy the 'all world tracker' 'units' when they are cheap.

Has anyone else had the inclination to do the same? Any advice for a very much investing/MMM noob?

anonmustach3

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I mostly invest in VTSAX but do put a bit in individual stocks for fun. I probably spend 50x the time researching and thinking about the individual stocks vs. VTSAX even though individual stocks are only about 1% of my portfolio. I only do that because I find it fun to research and invest in individual stocks - including when I make terrible choices and lose some money.

My suggestion is to treat it as a hobby if you think it's something you enjoy, but keep it small relative to the rest of your portfolio (sub 10%). Also find a platform where trades are free, which is probably almost all of them at this point thanks to Robinhood.

Monkey Uncle

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Probably not sensible.  Perhaps you are savvy enough to beat the market averages, but based on your description, I highly doubt it.

Twice in my investing career, I thought I was savvy enough.  This after lots and lots of reading on how to analyze individual stocks.  I was wrong both times.  Luckily both times I kept my stake small enough that it was just an expensive lesson and not a serious derailment of my finances.

Also, if the fund you currently own is capitalization weighted (most index funds are), then you already own substantial amounts of Microsoft and Apple.

TomTX

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Has anyone else had the inclination to do the same? Any advice for a very much investing/MMM noob?

If you're disciplined, there's about an 95% chance you will underperform the boring "get cash, index it, leave it alone" mantra, because typically the biggest chunk of gains for the whole market is about 5% of the stocks in any given year.

If you're not disciplined and routinely try to time the market, there's about a 99+% chance you will underperform due to incorrect guesses on market timing.

Note that these are long-term averages. You may well win in the short term. s.

PDXTabs

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If you're disciplined, there's about an 95% chance you will underperform the boring "get cash, index it, leave it alone" mantra, because typically the biggest chunk of gains for the whole market is about 5% of the stocks in any given year.

Do you have data for this?

FWIW I'm 100% VT, because I'm lazy.

TomTX

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If you're disciplined, there's about an 95% chance you will underperform the boring "get cash, index it, leave it alone" mantra, because typically the biggest chunk of gains for the whole market is about 5% of the stocks in any given year.

Do you have data for this?

FWIW I'm 100% VT, because I'm lazy.

Random article I dug up on the topic:

https://www.forbes.com/sites/simonmoore/2018/06/25/how-just-five-stocks-drive-so-much-of-the-markets-growth/#1534fed76469

I saw an article with data befor

John Galt incarnate!

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If you're disciplined, there's about an 95% chance you will underperform the boring "get cash, index it, leave it alone" mantra, because typically the biggest chunk of gains for the whole market is about 5% of the stocks in any given year.

If you're not disciplined and routinely try to time the market, there's about a 99+% chance you will underperform due to incorrect guesses on market timing.

Note that these are long-term averages. You may well win in the short term. s.

Bank of America analyzed the total return of the S&P 500  since 1930.

It is 14,962%.

 If an investor missed  the index's 10 best days in each  decade  their total return would be an unimaginably paltry 91%.
« Last Edit: April 05, 2020, 11:55:06 AM by John Galt incarnate! »

Dicey

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Hmmm, so you're asking us if it's okay to gamble? Sure, be our guest. I'll provide the popcorn.

drshadowsherlock

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Thanks for the replies guys. I understand that this is obviously a form of market timing / gambling. I understand I might lose all this money. Think I知 going ahead with it regardless - I知 young, can afford the loss, and it値l be a good learning opportunity now with relatively low stakes for the future.

I guess my question is - what has potential for better returns now when the market is low? Vanguard or individual companies?

vand

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If you want to buy individual stocks then go ahead do it.

Don't listen to these passive mouthpieces.

Nobody cares more about your own money than you do. It will be a part of your ongoing education as an investor. Be aware of the risks, but if you take time to lean how to properly analyze a stock then there is nothing to be scared of.

The fact that you show an interest in doing so, and are willing to learn, aren't afraid to make some mistakes (I assume) and become more than just a passive mouthpiece is your edge.


TomTX

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Ah, yes. The gold bug who knows more than everyone.

Monkey Uncle

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Thanks for the replies guys. I understand that this is obviously a form of market timing / gambling. I understand I might lose all this money. Think I知 going ahead with it regardless - I知 young, can afford the loss, and it値l be a good learning opportunity now with relatively low stakes for the future.

I guess my question is - what has potential for better returns now when the market is low? Vanguard or individual companies?

I think we've already answered your question.  Sure, some individual companies will outperform the indexes going forward.  But unless you are the very rare individual who can successfully pick those companies before they make their move, you are better off investing in a mutual fund.

Monkey Uncle

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If you want to buy individual stocks then go ahead do it.

Don't listen to these passive mouthpieces.

Nobody cares more about your own money than you do. It will be a part of your ongoing education as an investor. Be aware of the risks, but if you take time to lean how to properly analyze a stock then there is nothing to be scared of.

The fact that you show an interest in doing so, and are willing to learn, aren't afraid to make some mistakes (I assume) and become more than just a passive mouthpiece is your edge.

When I tried my hand at investing in individual stocks, I was aware of the risks, and I put in a lot of time learning how to properly analyze stocks.  The problem was that the professional stock analysts beat me to the punch every time.  By the time cracks in company performance started to show up in quarterly projections, the stock had already sold off.  It happened with so many of my picks that it was impossible that it was just coincidence.  A stock with solid financials suddenly started selling off for no apparent reason.  A month or two later, the company came out with a quarterly report that revised projected future profits or revenues downward.  I was no match for the people who make their full-time living analyzing stocks.

Perhaps you are better at this than I was.  If so, congratulations, and more power to you.  But the fact remains that the Warren Buffets of the world are rare, and the OP has said nothing that would lead me to believe that he/she is one of them.  So if he/she goes into this with eyes wide open and wants to take the risk knowing that he/she will almost certainly underperform an index fund, then fine.  I'm just trying to make sure he/she knows how this is likely to go.

vand

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Ah, yes. The gold bug who knows more than everyone.

Well, gold's doing just fine right now, wouldn't you say? Maybe worth listening to a thing or two I say on weight of evidence.

GreenEggs

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I've found https://www.portfoliovisualizer.com/backtest-portfolio and https://www.finscreener.com/screener/stock-screener


interesting tools for comparing a variety of stocks to index funds past performance.  Of course it's simple to beat the index funds when you choose the past winners to compare, but there are other ways to chose portfolios to backtest and compare results. 




TomTX

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Ah, yes. The gold bug who knows more than everyone.

Well, gold's doing just fine right now, wouldn't you say? Maybe worth listening to a thing or two I say on weight of evidence.

Nope. 

Once you discount the first few years after the USA went off the gold standard (and gold had a nice runup from the artificially depressed price*) - the returns are garbage. You're not going to get that "hey, gold is legal for private ownership again!" price runup.

https://www.longtermtrends.net/stocks-vs-gold-comparison/

Change the starting date to 1974 or 1975. The underperformance of gold becomes really obvious.

Now for the real kicker. Scroll down the page to the next chart which adds  total return (black line) - that first chart is just stock price, it neglects dividends.  The gaping chasm in performace is so large you don't even have to discount the artificial runup of the early to mid 1970s for gold anymore.

Of course, for reality - you need to put more drag on gold, as storing gold is expensive and/or risky. Either you're paying vault fees, you buy your own vault - or you're trusting that nobody else can find that hole in the ground where you stashed it. Plus you pay income tax on gold sales rather than cap gains, physical gold is never sold retail for spot (presume 3% in fees to buy or sell)

I hadn't done the analysis in awhile, so I guess it was a good exercise. Result:

Yeah, gold still looks like a pretty poor choice.

*Evidence? Because other countries were cashing out paper dollars for gold, which ultimately forced the USA off the gold standard. Gold was obviously worth more than the fixed price.

soccerluvof4

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I'll take the opposite side only in this sense- I echo what @anonmustach3  said and let me be clear with this. Only if its money you can afford to lose, enjoy doing the research and have the dicipline if you have a good run to stay playing with only the money you started with. I did 1% as well of my portfolio and again as @anonmustach3 said I just enjoy reading, research and the the decisions companies make and so on. Perhaps this was because I owned my own business but index funds for long term investing is where it is at.

FatFI2025

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If I were you I'd plan to allocate X% of my income for X years to this gambling pot and project it to be lost. It will push your FIRE date to the right. If the itch is worth the tradeoff, go ahead.

I watched my father make a large amount of money and piss it away investing poorly into his 70s. The problem is that he likes to invest, but he's bad at it, and not really aware of his biases. I make friends with eccentrics and this is such an archetype I can see if from a mile away now. It's always men, never women, and all ages from 18 to 80. No one is ever aware they are this archetype -- this is the risk at the heart of your inquiry.

So first I'd say, you're not that young and young money is extremely important to lifetime wealth if you don't have family money. But the far more important question is if you will be able to objectively evaluate your performance -- if your gut reaction is "yes," that's a red flag. Humans are terrible at judging themselves objectively. Then ask yourself, "ok when is this experiment going to end?" And then end it without changing your own rules. If you can't do those things, kiss FIRE goodbye.

MustacheAndaHalf

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@drshadowsherlock - Be careful of trusting answers you receive to the question of which individual stocks you should buy.  It's a good idea to keep 80% passive, and experiment with 20% stock picks.  How will you keep those two separate?  At least have two separate areas of your spreadsheet, to track how you're doing against a benchmark like Vanguard Total Stock Market.  And speaking of index funds, I'd recommend borrowing one idea from total market funds to reduce your risk: diversify your stock picks across sectors / industries.

For me, I started actively stock picking last month because many stocks were expected to go bankrupt, or at least have no business for a prolonged period of time.  Buying those stocks and waiting for them to recover is risky, but if gains outweigh bankruptcies, maybe it's worth the risk.