The Money Mustache Community

Learning, Sharing, and Teaching => Investor Alley => Topic started by: Jamese20 on February 25, 2018, 01:05:03 AM

Title: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 25, 2018, 01:05:03 AM
I get the logic, 98% of normal people who don't care about this stuff should index due to the stats,

But what I would like to challenge is this, how many % of the wider public follow this advice and be financially free decades before anyone else? They are just as rare breed than the people who can successfully pick the stocks that outperform.

Warren buffet states that you should be extremely diversified if you don't have the time or patience to pick the stocks you understand, however he states that it's a terrible mistake to diversify if you bring the intensity and focus to the game and then you should only pick 6-7 stocks that you fully understand and know and you will do very well.

When buffet speaks I listen hard, and I get that at the moment I should just stick to the index fund deal, but are people who find this stuff very interesting making a big mistake by not picking a few winning stocks with the right focus ? Warren Buffet does think so and I don't consider this a man who wants people to lose my money
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 25, 2018, 03:55:19 AM
oh man... you are going to get eaten alive on this forum... ;)

okay, where to begin...

1) warren buffett is a great man but not bc of his LUCK with investing. Hes just a great guy. That being said, if you flip 2,000,000 coins 100x each what are the odds that ONE of those coins will turn up heads every flip? If you have millions upon millions of investors, what are the odds that a few are going to do very well? It would be a miracle if there weren't any warren buffets, just by chance alone. But for every warren buffet or anyone who out performs the collective average, there is someone who must, by mathematical law, under perform the collective average by the exact same amount - thus, you have the average. Also, Buffett has invested in "value" stocks and actually started with "Small value". Comparing him to the S/P 500 (which most do) is not accurate. Small value has outperformed the S/P 500 going back as far as 1926. He still has beaten the small value index, but again the 2,000,000 coins thing. Someone is going to do it, guaranteed, given a large enough sample size. it doesn't mean that person had any skill. If enough people buy a lottery ticket someone will win the lottery. It's just sample size.

2) I mentioned this above but the reason why you should not actively pick stocks is because it is a zero-sum game. Jack Bogle explains this very well. It's a closed system. By definition, half the dollars invested will beat the index and half the dollars will lose to the index. Collectively, all the dollars equal the index.

3) Okay, everyone knows #2. So you think you can be in the winning half? Well consider that the vast majority of the actual dollars traded are controlled by institutional investors and hedge funds. the big boys. not you and I, not the average trader. Maybe you do have a strong interest in some individual stocks and you do know more than the "average joe" when it pertains to those specific stocks. But do you know more than the hedge fund manager who's job it is to research these companies and who has all the computing power in the world to analyze them? Chances are very high (like 80-90%) that you are trading against an institutional manager or a hedge fund manager.

4) Okay but you spend all your time researching 1-2 companies and you feel like, yes, you know them better than even the hedge fund manager or others who are PAID to research these companies (and who have teams of analysts to help them out). Maybe so (it's technically possible I'll give you that). But then how the hell can you have any diversification? You can either bet on your knowledge of these companies and put a sizable chunk of your portfolio into them or just put a small slice in. If you do the latter its really not going to make a difference one way or the other, your total return over many decades will probably suffer some but hopefully you'll still reach your goals. if you throw a sizable chunk in then you are at serious risk of going broke. But, going back to the larger point, in order for you to even have some "pristine" knowledge of a few companies, more than a team of analysts would, you'd have to spend a vast amount of time researching taking away from either your career or your family. Simply put, you'd probably be better off focusing your time/energy on improving your W2 income vs picking stocks.

5) Lastly, you don't just have to outperform the index. You must outperform the index after costs. Trading is expensive. There's the commissions. There's the bid-ask spread. There's taxes... There's the second-guessing yourself and totally getting out of the stock market after having a few bad runs, thus missing out on future growth....

Anyhow, I hope you don't get torched too badly on this forum, maybe there are even a few who agree with you? But don't take anything as gospel from me or anyone else on here. Read a book by John Bogle. Little book of common sense investing I think is what his is called. If you find it entertaining, kind of like gambling, to pick stocks then do it with 5% or less of your portfolio. But I'd rather go to the casino - at least they'll give you free drinks.
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on February 25, 2018, 04:19:05 AM
We can play a game. Very few who are stock pickers will name their plays and when they get in and out on here.  And when I say get in and out I mean you post the minute you buy and the minute you sell. In all likelihood you'll lose to the market over the next 30 years. But I'm up for the experiment if you are.

People who get paid to pick stocks as their full time job rarely beat the market.  You should be asking yourself why these guys who manage billions aren't coming out of the woodwork work to take on his 1MM 10year s&p 500 vs your hedge fund bet.  So I'm sure you're just different. Let's play!
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 25, 2018, 04:37:24 AM
oh man... you are going to get eaten alive on this forum... ;)

okay, where to begin...

1) warren buffett is a great man but not bc of his LUCK with investing. Hes just a great guy. That being said, if you flip 2,000,000 coins 100x each what are the odds that ONE of those coins will turn up heads every flip? If you have millions upon millions of investors, what are the odds that a few are going to do very well? It would be a miracle if there weren't any warren buffets, just by chance alone. But for every warren buffet or anyone who out performs the collective average, there is someone who must, by mathematical law, under perform the collective average by the exact same amount - thus, you have the average. Also, Buffett has invested in "value" stocks and actually started with "Small value". Comparing him to the S/P 500 (which most do) is not accurate. Small value has outperformed the S/P 500 going back as far as 1926. He still has beaten the small value index, but again the 2,000,000 coins thing. Someone is going to do it, guaranteed, given a large enough sample size. it doesn't mean that person had any skill. If enough people buy a lottery ticket someone will win the lottery. It's just sample size.

2) I mentioned this above but the reason why you should not actively pick stocks is because it is a zero-sum game. Jack Bogle explains this very well. It's a closed system. By definition, half the dollars invested will beat the index and half the dollars will lose to the index. Collectively, all the dollars equal the index.

3) Okay, everyone knows #2. So you think you can be in the winning half? Well consider that the vast majority of the actual dollars traded are controlled by institutional investors and hedge funds. the big boys. not you and I, not the average trader. Maybe you do have a strong interest in some individual stocks and you do know more than the "average joe" when it pertains to those specific stocks. But do you know more than the hedge fund manager who's job it is to research these companies and who has all the computing power in the world to analyze them? Chances are very high (like 80-90%) that you are trading against an institutional manager or a hedge fund manager.

4) Okay but you spend all your time researching 1-2 companies and you feel like, yes, you know them better than even the hedge fund manager or others who are PAID to research these companies (and who have teams of analysts to help them out). Maybe so (it's technically possible I'll give you that). But then how the hell can you have any diversification? You can either bet on your knowledge of these companies and put a sizable chunk of your portfolio into them or just put a small slice in. If you do the latter its really not going to make a difference one way or the other, your total return over many decades will probably suffer some but hopefully you'll still reach your goals. if you throw a sizable chunk in then you are at serious risk of going broke. But, going back to the larger point, in order for you to even have some "pristine" knowledge of a few companies, more than a team of analysts would, you'd have to spend a vast amount of time researching taking away from either your career or your family. Simply put, you'd probably be better off focusing your time/energy on improving your W2 income vs picking stocks.

5) Lastly, you don't just have to outperform the index. You must outperform the index after costs. Trading is expensive. There's the commissions. There's the bid-ask spread. There's taxes... There's the second-guessing yourself and totally getting out of the stock market after having a few bad runs, thus missing out on future growth....

Anyhow, I hope you don't get torched too badly on this forum, maybe there are even a few who agree with you? But don't take anything as gospel from me or anyone else on here. Read a book by John Bogle. Little book of common sense investing I think is what his is called. If you find it entertaining, kind of like gambling, to pick stocks then do it with 5% or less of your portfolio. But I'd rather go to the casino - at least they'll give you free drinks.

Thanks man and thanks for the getting eaten bit lol...the reality is though stock winners are as rare breed as mustachians are they not ? And yet people think this stuff is doable for anyone who is willing to learn it? Isn't that the case in point for picking 6-7 stocks for the long term?

I also mean not active day trading I mean doing literally what buffet suggests and stick to picking a few stocks and hold if you believe they will do well, like he did with coke for example.

In 12 month's time when I finally get rid of my debt for good I will 99.9% be investing in the index, but I also have a new found passion for investing as a whole and feel like I should be listening to the sensible investors. I feel like I enjoy this whole investing world way too much to only be sitting in indexes ?

I don't think warren is just lucky in the sense he gambled his way to one of the wealthiest guys on the planet, I don't buy that theory, a gambler always loses in the end and warren just keeps getting richer year after year

He even made money with the wrong long term strategy - I do also believe that he is just a genius when it comes to this stuff but he thinks others can be better than average if they apply themselves in the right way and don't go into wall Street essentially..

While I am sitting on the sidelines for 12 months it can't hurt to explore without losing anything - I just wanted people's opinions out side of the 98% of people can't do it argument..which can be applied to any one of us looking to FI. Early 
Title: Re: Why is active stock picking so taboo on here ?
Post by: misterhorsey on February 25, 2018, 04:45:10 AM
Warren buffet states that you should be extremely diversified if you don't have the time or patience to pick the stocks you understand, however he states that it's a terrible mistake to diversify if you bring the intensity and focus to the game and then you should only pick 6-7 stocks that you fully understand and know and you will do very well.

When buffet speaks I listen hard, and I get that at the moment I should just stick to the index fund deal, but are people who find this stuff very interesting making a big mistake by not picking a few winning stocks with the right focus ? Warren Buffet does think so and I don't consider this a man who wants people to lose my money

I'm a big Buffett fan.

But although he looks like a normal human he really isn't.

Read the biography by Roger Lowenstein if you haven't.

https://www.goodreads.com/book/show/1155.Buffett

Or if you are short on time, watch this doco.

https://www.youtube.com/watch?v=PB5krSvFAPY

The coin toss scenario that Privatefarmer mentioned can explain his success, or someone's success.

But putting that aside, Buffett is also someone who basically doesn't have a life outside of investing.  It's not a few hours a day. It's not his job. It's his entire existence.  If someone was going to outperform the market over more than half a century he's certainly done the groundwork.  So I admire him but no way would I want anything like his life.
Title: Re: Why is active stock picking so taboo on here ?
Post by: misterhorsey on February 25, 2018, 04:52:31 AM
I might also recommend The Intelligent Investor by Buffett's mentor, Benjamin Graham, if you haven't already.

https://www.goodreads.com/book/show/106835.The_Intelligent_Investor

It sets the framework for value investing. I found it really interesting, but after reading the principles and methodology behind value investing, I decided that I had better uses of my time.

One last thing, not long before Buffett started investing he had access not just to publicly traded shares, but meeting with the actual Boards and owners of the businesses he was investing in. And so he could base investment decisions on a far greater level of due diligence. This is a far cry from reading analyst reports, stock tip newsletters, annual reports or the level of info that Joe and Jenny Public get access to. This doesn't guarantee success obviously, but it's probably instrumental to reducing his failures.



Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 25, 2018, 05:34:55 AM
oh man... you are going to get eaten alive on this forum... ;)

okay, where to begin...

1) warren buffett is a great man but not bc of his LUCK with investing. Hes just a great guy. That being said, if you flip 2,000,000 coins 100x each what are the odds that ONE of those coins will turn up heads every flip? If you have millions upon millions of investors, what are the odds that a few are going to do very well? It would be a miracle if there weren't any warren buffets, just by chance alone. But for every warren buffet or anyone who out performs the collective average, there is someone who must, by mathematical law, under perform the collective average by the exact same amount - thus, you have the average. Also, Buffett has invested in "value" stocks and actually started with "Small value". Comparing him to the S/P 500 (which most do) is not accurate. Small value has outperformed the S/P 500 going back as far as 1926. He still has beaten the small value index, but again the 2,000,000 coins thing. Someone is going to do it, guaranteed, given a large enough sample size. it doesn't mean that person had any skill. If enough people buy a lottery ticket someone will win the lottery. It's just sample size.

2) I mentioned this above but the reason why you should not actively pick stocks is because it is a zero-sum game. Jack Bogle explains this very well. It's a closed system. By definition, half the dollars invested will beat the index and half the dollars will lose to the index. Collectively, all the dollars equal the index.

3) Okay, everyone knows #2. So you think you can be in the winning half? Well consider that the vast majority of the actual dollars traded are controlled by institutional investors and hedge funds. the big boys. not you and I, not the average trader. Maybe you do have a strong interest in some individual stocks and you do know more than the "average joe" when it pertains to those specific stocks. But do you know more than the hedge fund manager who's job it is to research these companies and who has all the computing power in the world to analyze them? Chances are very high (like 80-90%) that you are trading against an institutional manager or a hedge fund manager.

4) Okay but you spend all your time researching 1-2 companies and you feel like, yes, you know them better than even the hedge fund manager or others who are PAID to research these companies (and who have teams of analysts to help them out). Maybe so (it's technically possible I'll give you that). But then how the hell can you have any diversification? You can either bet on your knowledge of these companies and put a sizable chunk of your portfolio into them or just put a small slice in. If you do the latter its really not going to make a difference one way or the other, your total return over many decades will probably suffer some but hopefully you'll still reach your goals. if you throw a sizable chunk in then you are at serious risk of going broke. But, going back to the larger point, in order for you to even have some "pristine" knowledge of a few companies, more than a team of analysts would, you'd have to spend a vast amount of time researching taking away from either your career or your family. Simply put, you'd probably be better off focusing your time/energy on improving your W2 income vs picking stocks.

5) Lastly, you don't just have to outperform the index. You must outperform the index after costs. Trading is expensive. There's the commissions. There's the bid-ask spread. There's taxes... There's the second-guessing yourself and totally getting out of the stock market after having a few bad runs, thus missing out on future growth....

Anyhow, I hope you don't get torched too badly on this forum, maybe there are even a few who agree with you? But don't take anything as gospel from me or anyone else on here. Read a book by John Bogle. Little book of common sense investing I think is what his is called. If you find it entertaining, kind of like gambling, to pick stocks then do it with 5% or less of your portfolio. But I'd rather go to the casino - at least they'll give you free drinks.

Thanks man and thanks for the getting eaten bit lol...the reality is though stock winners are as rare breed as mustachians are they not ? And yet people think this stuff is doable for anyone who is willing to learn it? Isn't that the case in point for picking 6-7 stocks for the long term?

I also mean not active day trading I mean doing literally what buffet suggests and stick to picking a few stocks and hold if you believe they will do well, like he did with coke for example.

In 12 month's time when I finally get rid of my debt for good I will 99.9% be investing in the index, but I also have a new found passion for investing as a whole and feel like I should be listening to the sensible investors. I feel like I enjoy this whole investing world way too much to only be sitting in indexes ?

I don't think warren is just lucky in the sense he gambled his way to one of the wealthiest guys on the planet, I don't buy that theory, a gambler always loses in the end and warren just keeps getting richer year after year

He even made money with the wrong long term strategy - I do also believe that he is just a genius when it comes to this stuff but he thinks others can be better than average if they apply themselves in the right way and don't go into wall Street essentially..

While I am sitting on the sidelines for 12 months it can't hurt to explore without losing anything - I just wanted people's opinions out side of the 98% of people can't do it argument..which can be applied to any one of us looking to FI. Early

Oh okay I misunderstood. If you're talking about taking a small percentage and picking a few stocks to buy-and-hold using basic value-investing principles like Warren then yeah I could see the reasoning behind that. It may beat the index or it may not but if it's a small percentage then it's not really that big of a deal one way or the other. It'd be more like a hobby than anything else and I could see the appeal of learning about individual companies and picking a few to invest in. I would just want to be careful not to give up on passive should a few of your picks work out - I would be sure to leave the vast majority of my equities in low-cost index funds that are globally diversified.

Really, though, the zero-sum game argument cuts both ways. I mean you can argue that you essentially have the exact same odds of beating the index as you do losing to the index, since it's a zero-sum game and the index is the collective average. But that is before costs. If, however, you are buy-and-holding individual stocks and you are still very well diversified, then there is essentially no extra costs involved so I don't see why not. In theory, you could pick maybe 30-50 companies spread out across the globe, buy-and-hold them, and basically be just as well of as if you bought an index fund. You'd have just about as much diversity (I've read that once you hit 30 stocks you essentially are diversified) and the costs would be essentially zero after you've purchased the shares.
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 25, 2018, 05:41:57 AM
oh man... you are going to get eaten alive on this forum... ;)

okay, where to begin...

1) warren buffett is a great man but not bc of his LUCK with investing. Hes just a great guy. That being said, if you flip 2,000,000 coins 100x each what are the odds that ONE of those coins will turn up heads every flip? If you have millions upon millions of investors, what are the odds that a few are going to do very well? It would be a miracle if there weren't any warren buffets, just by chance alone. But for every warren buffet or anyone who out performs the collective average, there is someone who must, by mathematical law, under perform the collective average by the exact same amount - thus, you have the average. Also, Buffett has invested in "value" stocks and actually started with "Small value". Comparing him to the S/P 500 (which most do) is not accurate. Small value has outperformed the S/P 500 going back as far as 1926. He still has beaten the small value index, but again the 2,000,000 coins thing. Someone is going to do it, guaranteed, given a large enough sample size. it doesn't mean that person had any skill. If enough people buy a lottery ticket someone will win the lottery. It's just sample size.

2) I mentioned this above but the reason why you should not actively pick stocks is because it is a zero-sum game. Jack Bogle explains this very well. It's a closed system. By definition, half the dollars invested will beat the index and half the dollars will lose to the index. Collectively, all the dollars equal the index.

3) Okay, everyone knows #2. So you think you can be in the winning half? Well consider that the vast majority of the actual dollars traded are controlled by institutional investors and hedge funds. the big boys. not you and I, not the average trader. Maybe you do have a strong interest in some individual stocks and you do know more than the "average joe" when it pertains to those specific stocks. But do you know more than the hedge fund manager who's job it is to research these companies and who has all the computing power in the world to analyze them? Chances are very high (like 80-90%) that you are trading against an institutional manager or a hedge fund manager.

4) Okay but you spend all your time researching 1-2 companies and you feel like, yes, you know them better than even the hedge fund manager or others who are PAID to research these companies (and who have teams of analysts to help them out). Maybe so (it's technically possible I'll give you that). But then how the hell can you have any diversification? You can either bet on your knowledge of these companies and put a sizable chunk of your portfolio into them or just put a small slice in. If you do the latter its really not going to make a difference one way or the other, your total return over many decades will probably suffer some but hopefully you'll still reach your goals. if you throw a sizable chunk in then you are at serious risk of going broke. But, going back to the larger point, in order for you to even have some "pristine" knowledge of a few companies, more than a team of analysts would, you'd have to spend a vast amount of time researching taking away from either your career or your family. Simply put, you'd probably be better off focusing your time/energy on improving your W2 income vs picking stocks.

5) Lastly, you don't just have to outperform the index. You must outperform the index after costs. Trading is expensive. There's the commissions. There's the bid-ask spread. There's taxes... There's the second-guessing yourself and totally getting out of the stock market after having a few bad runs, thus missing out on future growth....

Anyhow, I hope you don't get torched too badly on this forum, maybe there are even a few who agree with you? But don't take anything as gospel from me or anyone else on here. Read a book by John Bogle. Little book of common sense investing I think is what his is called. If you find it entertaining, kind of like gambling, to pick stocks then do it with 5% or less of your portfolio. But I'd rather go to the casino - at least they'll give you free drinks.

I don't think warren is just lucky in the sense he gambled his way to one of the wealthiest guys on the planet, I don't buy that theory, a gambler always loses in the end and warren just keeps getting richer year after year

This I disagree with. He actually has not gotten richer year after year. He has lost to the market from time to time (8 of the last 20 years to be exact). So although his long-term performance is stellar (~20% CAGR) he is not 100% consistent.

The other poster mentioned how much time Warren puts into this. Well I guarantee that there are many other investors who have put just as much time into it and have failed miserably. Hell there are people who spent their wholes lives studying a specific product or idea, developing that into a business, and then failing and going bankrupt. If those people don't know enough about their companies/products to beat the market, or even just stay afloat, how can we possibly invest enough time to?
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 25, 2018, 05:46:32 AM
oh man... you are going to get eaten alive on this forum... ;)

okay, where to begin...

1) warren buffett is a great man but not bc of his LUCK with investing. Hes just a great guy. That being said, if you flip 2,000,000 coins 100x each what are the odds that ONE of those coins will turn up heads every flip? If you have millions upon millions of investors, what are the odds that a few are going to do very well? It would be a miracle if there weren't any warren buffets, just by chance alone. But for every warren buffet or anyone who out performs the collective average, there is someone who must, by mathematical law, under perform the collective average by the exact same amount - thus, you have the average. Also, Buffett has invested in "value" stocks and actually started with "Small value". Comparing him to the S/P 500 (which most do) is not accurate. Small value has outperformed the S/P 500 going back as far as 1926. He still has beaten the small value index, but again the 2,000,000 coins thing. Someone is going to do it, guaranteed, given a large enough sample size. it doesn't mean that person had any skill. If enough people buy a lottery ticket someone will win the lottery. It's just sample size.

2) I mentioned this above but the reason why you should not actively pick stocks is because it is a zero-sum game. Jack Bogle explains this very well. It's a closed system. By definition, half the dollars invested will beat the index and half the dollars will lose to the index. Collectively, all the dollars equal the index.

3) Okay, everyone knows #2. So you think you can be in the winning half? Well consider that the vast majority of the actual dollars traded are controlled by institutional investors and hedge funds. the big boys. not you and I, not the average trader. Maybe you do have a strong interest in some individual stocks and you do know more than the "average joe" when it pertains to those specific stocks. But do you know more than the hedge fund manager who's job it is to research these companies and who has all the computing power in the world to analyze them? Chances are very high (like 80-90%) that you are trading against an institutional manager or a hedge fund manager.

4) Okay but you spend all your time researching 1-2 companies and you feel like, yes, you know them better than even the hedge fund manager or others who are PAID to research these companies (and who have teams of analysts to help them out). Maybe so (it's technically possible I'll give you that). But then how the hell can you have any diversification? You can either bet on your knowledge of these companies and put a sizable chunk of your portfolio into them or just put a small slice in. If you do the latter its really not going to make a difference one way or the other, your total return over many decades will probably suffer some but hopefully you'll still reach your goals. if you throw a sizable chunk in then you are at serious risk of going broke. But, going back to the larger point, in order for you to even have some "pristine" knowledge of a few companies, more than a team of analysts would, you'd have to spend a vast amount of time researching taking away from either your career or your family. Simply put, you'd probably be better off focusing your time/energy on improving your W2 income vs picking stocks.

5) Lastly, you don't just have to outperform the index. You must outperform the index after costs. Trading is expensive. There's the commissions. There's the bid-ask spread. There's taxes... There's the second-guessing yourself and totally getting out of the stock market after having a few bad runs, thus missing out on future growth....

Anyhow, I hope you don't get torched too badly on this forum, maybe there are even a few who agree with you? But don't take anything as gospel from me or anyone else on here. Read a book by John Bogle. Little book of common sense investing I think is what his is called. If you find it entertaining, kind of like gambling, to pick stocks then do it with 5% or less of your portfolio. But I'd rather go to the casino - at least they'll give you free drinks.

Thanks man and thanks for the getting eaten bit lol...the reality is though stock winners are as rare breed as mustachians are they not ? And yet people think this stuff is doable for anyone who is willing to learn it? Isn't that the case in point for picking 6-7 stocks for the long term?

I also mean not active day trading I mean doing literally what buffet suggests and stick to picking a few stocks and hold if you believe they will do well, like he did with coke for example.

In 12 month's time when I finally get rid of my debt for good I will 99.9% be investing in the index, but I also have a new found passion for investing as a whole and feel like I should be listening to the sensible investors. I feel like I enjoy this whole investing world way too much to only be sitting in indexes ?

I don't think warren is just lucky in the sense he gambled his way to one of the wealthiest guys on the planet, I don't buy that theory, a gambler always loses in the end and warren just keeps getting richer year after year

He even made money with the wrong long term strategy - I do also believe that he is just a genius when it comes to this stuff but he thinks others can be better than average if they apply themselves in the right way and don't go into wall Street essentially..

While I am sitting on the sidelines for 12 months it can't hurt to explore without losing anything - I just wanted people's opinions out side of the 98% of people can't do it argument..which can be applied to any one of us looking to FI. Early

sorry for all the replies. But I also don't think you can compare mustachians to successful active stock pickers. Mustachians are rare, yes, but if you wanted to make this comparison you would also have to consider the "anti-mustachians" who have the exact same population size as the mustachians. Because for every successful stock picker there is an unsuccessful one. This is the main point. For every dollar that beats the index there MUST be a dollar that loses to the index. Whereas everyone in the world could become a Mustachian, exactly 50% of the dollars invested in stocks can beat the index they are in, the other 50% by definition must lose.
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 25, 2018, 05:51:04 AM
And one more thing (sorry!) - just doing some basic math here, we know that the index fund will get the exact dollar-weighted average return of the stock market before costs. Thus AFTER costs, the index will 100% of the time be in the top 50% of returns... think about it. So if you are in the top 50% of returns Year. After. Year. that is actually a huge deal. The odds of being the top 50% after two years is 25% (50% x 50%), 12.5% after 3 years (50% x 50% x 50%) etc. etc.

So imagine what the odds of being, after costs, in the top 50% of returns for 30+ years are.... I can tell you because I just did it on my calculator : it is 0.00000009%.

My point is that buying an index fund guarantees that, after costs, you will be in the top half of returns each and every year. If you are in the top half year-after-year for many decades, you are going to do verrrrrrry well compared to all the active stock pickers.
Title: Re: Why is active stock picking so taboo on here ?
Post by: harvestbook on February 25, 2018, 07:34:23 AM
Buffet also slams high fees and is very tax-conscious (thus Berkshire doesn't pay dividends on purpose) and is a critic of Wall Street. Index investing is the cheapest and among the most tax-efficient ways to invest.

Also, those who do outperform over the short term can very rarely sustain that success over a decade or two. So yes, it can be done, but it's not very sensible if early retirement and reasonable financial expectations are the ultimate goal. It's easier to hit singles, make some sacrifice bunts, and steal a base here and there instead of swinging for the fences and risking a strikeout.
Title: Re: Why is active stock picking so taboo on here ?
Post by: tyler2016 on February 25, 2018, 07:39:57 AM
 The indexes hold some poor investments bid up to insane valuations. Consider the insane valuation ratios seen in the .com bust. The P/E, current ratios, P/B and even PEGs were insane. There are some current examples of crazy valuations. Vanguard does have some indexes that are value indexes. I'm not sure what the numbers are compared to the S&P though.

Hedge fund managers spend a lot of time on this, but they aren't experts on the products and services businesses offer. I'd bet that a SW engineer or sysad that has read Ben Graham's books would do a much better job picking tech stocks than a hedge fund manager.

Institutional investors have some disadvantages. Peter Lynch talks about this in his book.

Beating the indexes is tough, but it isn't just luck, professionals have handicaps as well, but I think it is doable by those with a little brains, rationality, and discipline for it. I wouldn't recommend individual securities unless you have read The Intelligent Investor, Security Analysis, and at least 3 other books on the topic.
Title: Re: Why is active stock picking so taboo on here ?
Post by: ampersand on February 25, 2018, 08:38:41 AM
A couple things that I haven’t seen mentioned yet. I wouldn’t completely discourage active investing. But if you want to do it follow warrens cue. Do the research. The vast majority of the day he reads. He also has a good enough memory to remember all the annual reports he’s read? Is that something you can do?

He also sits and holds cash for when the market truly goes bonkers. He owns businesses that give him free money to invest as well (the float in his insurance empire).

With his reputation, he’s also put himself in the position to have enough money to buy into companies and save them with deals even the rest of Wall st. Doesn’t have access to.

Long and short- it’s a ton of work, and I’d much rather buy index than not have a life for the next 20 years.

Just understand that without that level of work and knowledge you are probably speculating as much as you are investing. (To be fair, index investing could be seen as speculation, just speculation with a very positive long term success schedule).


Sent from my iPhone using Tapatalk
Title: Re: Why is active stock picking so taboo on here ?
Post by: bacchi on February 25, 2018, 10:00:49 AM
He also sits and holds cash for when the market truly goes bonkers. He owns businesses that give him free money to invest as well (the float in his insurance empire).

The float is huge. Even if he bought T-notes with it, he'd be up a few % each year.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 25, 2018, 10:32:55 AM
Thanks for the thoughts guys

To summarize my question on this

- decade returns are predicted at very low due to the current situation at 4% real returns according to Bogle who likes to think he has been berry accurate on a decade basis - can we all do a little better than 4% with some sensible picks ?
 
- the buffet mentions above

- I'm not talking about day trading or penny stocks to avoid confusion, I am talking about a type of find like apple in 2009 and holding like buffet would suggest

- I will read a bunch of books on this over the next 12 months

- I will either do one of 2 things, index for a decade and see where that takes me (most likely) then save a bunch of money to try to direct picks of my own, or I will try to pick 6-7 or less of my own picks over the next decade or see where that takes me.

I blame buffet lol, he has caught my attention with his duel answer to this
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on February 25, 2018, 11:49:58 AM
Thanks for the thoughts guys

To summarize my question on this

- decade returns are predicted at very low due to the current situation at 4% real returns according to Bogle who likes to think he has been berry accurate on a decade basis - can we all do a little better than 4% with some sensible picks ?
 
- the buffet mentions above

- I'm not talking about day trading or penny stocks to avoid confusion, I am talking about a type of find like apple in 2009 and holding like buffet would suggest

- I will read a bunch of books on this over the next 12 months

- I will either do one of 2 things, index for a decade and see where that takes me (most likely) then save a bunch of money to try to direct picks of my own, or I will try to pick 6-7 or less of my own picks over the next decade or see where that takes me.

I blame buffet lol, he has caught my attention with his duel answer to this

A couple things:   

--There is a reason Buffett is famous.  That's because he's the only guy who has had that type of performance over his career.   Do you anybody who picked just six or seven stocks and got really wealthy that way?  Have you even heard of anybody like that?   

--The reason that stock picking is hard, is because is contrary to human nature.  That means all humans start off with a disadvantage.

--If you are going to beat the market, you must do things differently than the market.  Which means you can expect periods of under performance.  During those times, you will question your strategy, and be tempted to switch, which is one reason why most investors don't beat the market. 

--Buffett is not just an investor, he is also a businessman and has access to business deals that you or I will never have. 

--Since about 1998, Buffett's outperformance has mostly gone away.   

--If you admire Buffett, you can simply buy BRK and have him manage your money!   
Title: Re: Why is active stock picking so taboo on here ?
Post by: PDXTabs on February 25, 2018, 11:53:27 AM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 25, 2018, 12:19:30 PM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

I counter that with how many early fi people are there 1 in 200? Maybe more but yet everyone is saying it can be done so why is this so different? I still haven't really seen any response other than a stat I already know? And money managers are always taking away fees which hinders the performance. Aren't these people always messing about with stocks far too much anyway because they feel they have to do something every day? Buffet also talks about this also

As regarding buying Berkshire...I would definitely do this but buffet and Munger's age is a real concern and the likelihood of them both being around over the next decade is rather slim...such a shame
Title: Re: Why is active stock picking so taboo on here ?
Post by: Travis on February 25, 2018, 12:36:24 PM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

I counter that with how many early fi people are there 1 in 200? Maybe more but yet everyone is saying it can be done so why is this so different? I still haven't really seen any response other than a stat I already know? And money managers are always taking away fees which hinders the performance. Aren't these people always messing about with stocks far too much anyway because they feel they have to do something every day? Buffet also talks about this also

As regarding buying Berkshire...I would definitely do this but buffet and Munger's age is a real concern and the likelihood of them both being around over the next decade is rather slim...such a shame

Comparing the small populations of Mustachians to the small population of successful stock pickers is not comparable for this simple reason: to be a successful Mustachian you only need to know yourself.  Stock picking depends on being an expert in each individual company, tax law, trading schedules, predicting the future of those companies, predicting the future of market and natural forces that may affect that company, and a dash of luck.  To be Mustachian you just need to understand your own income, expenses, and personality.  One is orders of magnitude more simple to achieve than the other.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on February 25, 2018, 01:03:26 PM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

I counter that with how many early fi people are there 1 in 200? Maybe more but yet everyone is saying it can be done so why is this so different? I still haven't really seen any response other than a stat I already know? And money managers are always taking away fees which hinders the performance. Aren't these people always messing about with stocks far too much anyway because they feel they have to do something every day? Buffet also talks about this also


The path to FI is dead simple.  Save more than you spend, and once you are 25x annual expenses you're done.  Yes, there are a few tweaks around the edges, Roth vs. Trad, etc. but that's really about it.

Now let's talk about stocks.  Here is Microsoft's 10k:

https://www.microsoft.com/investor/reports/ar17/index.html

Read through and conclude if the stock is a good buy or not.  But even that's not enough, because you have to look at Microsoft's competitors and see what they are doing as well. 

By the way, Buffett read IBM's 10k every year for 50 years before deciding to buy.  He didn't set it aside and revisit it every four or five years.  Every year for 50 years. 

And he still (likely) made a bad decision. 



Title: Re: Why is active stock picking so taboo on here ?
Post by: doneby35 on February 25, 2018, 01:15:05 PM
I think I read the following in an investing book:
"Are you Warren Buffet? If the answer is no, stick to low cost index funds".
Title: Re: Why is active stock picking so taboo on here ?
Post by: PDXTabs on February 25, 2018, 01:23:24 PM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

I counter that with how many early fi people are there 1 in 200? Maybe more but yet everyone is saying it can be done so why is this so different? I still haven't really seen any response other than a stat I already know? And money managers are always taking away fees which hinders the performance. Aren't these people always messing about with stocks far too much anyway because they feel they have to do something every day? Buffet also talks about this also

I have personally lost money on Apple, BP, and Verizon stock. If you want to stock pick, be my guest. I'll be buying globally diverse index funds.

Also, I have a full time job. How can I expect to compete with professionally trained money managers while working my engineering job?
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 25, 2018, 11:50:29 PM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

I counter that with how many early fi people are there 1 in 200? Maybe more but yet everyone is saying it can be done so why is this so different? I still haven't really seen any response other than a stat I already know?

being FI vs being a successful stock picker are not comparable:

Everyone in the world can become FI w/o impeding the ability of others to become FI. Only half the dollars invested can beat the index, the other half MUST lose to the index. There's no way around that. It's a closed system, in order to be above average someone else must be below average. So while it may be rare to be FI, you being FI does not impede anyone else from being FI, the two are not related. Me beating the market with $100k means that another $100k HAD to have lost to the market.
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 25, 2018, 11:52:33 PM
Thanks for the thoughts guys

To summarize my question on this

- decade returns are predicted at very low due to the current situation at 4% real returns according to Bogle who likes to think he has been berry accurate on a decade basis - can we all do a little better than 4% with some sensible picks ?
 
- the buffet mentions above

- I'm not talking about day trading or penny stocks to avoid confusion, I am talking about a type of find like apple in 2009 and holding like buffet would suggest

- I will read a bunch of books on this over the next 12 months

- I will either do one of 2 things, index for a decade and see where that takes me (most likely) then save a bunch of money to try to direct picks of my own, or I will try to pick 6-7 or less of my own picks over the next decade or see where that takes me.

I blame buffet lol, he has caught my attention with his duel answer to this
--Buffett is not just an investor, he is also a businessman and has access to business deals that you or I will never have. 

This. Buffett does not simply buy companies and passively share their profits. He helps run these companies. He becomes a partner in them and sits on their boards. He ACTIVELY manages companies. This is COMPLETELY different than passively buying shares of a company w/o any say of how the company is ran.
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 25, 2018, 11:55:35 PM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

Is this even a true statistic? Where'd you get it from? I wouldn't think it'd be even that high. And is that before or after trading costs and fees? AND, it is impossible to predict who is going to be that 1:200 ahead of time.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 26, 2018, 12:00:08 AM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

I counter that with how many early fi people are there 1 in 200? Maybe more but yet everyone is saying it can be done so why is this so different? I still haven't really seen any response other than a stat I already know?

being FI vs being a successful stock picker are not comparable:

Everyone in the world can become FI w/o impeding the ability of others to become FI. Only half the dollars invested can beat the index, the other half MUST lose to the index. There's no way around that. It's a closed system, in order to be above average someone else must be below average. So while it may be rare to be FI, you being FI does not impede anyone else from being FI, the two are not related. Me beating the market with $100k means that another $100k HAD to have lost to the market.

Very valid point, I just wonder why buffet would have 2 answers to my question if it was so impossible - he says a no nothing Investor should index but not necessarily for someone who is willing to be more focused - also he thinks it's way easier to be the average using modest sums.

I personally thinks it is really hard due to to emotional reason not ability reasons - that is probably why I will stick to indexing
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 26, 2018, 12:01:24 AM
The indexes hold some poor investments bid up to insane valuations. Consider the insane valuation ratios seen in the .com bust. The P/E, current ratios, P/B and even PEGs were insane. There are some current examples of crazy valuations. Vanguard does have some indexes that are value indexes.

Define "insane". the problem is that you or me or someone else may think a stock price is "insane" but the MARKET does not. The Market thinks the price is the price. Millions of investors have COLLECTIVELY decided that XYZ company is worth whatever it is currently priced at. It may be wrong (probably is), but you and I have NO WAY of knowing whether the market has over or under-valued it. You have to remember that all available information is priced into the stock.

Going down your rabbit hole, a counter argument would be that bond yields are historically low and thus investors must seek return elsewhere, driving up stock prices. So everything is "over valued" in this scenario, bonds and stocks (and real estate too). Okay, so what can we do? If everything is over valued you still have to invest or else make a real negative return in cash. But again, nobody knows nothin'. The price is the price and you or I or Warren Buffett honestly have no better insight over the millions of investors who have set the price at what it is.
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 26, 2018, 12:04:19 AM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

I counter that with how many early fi people are there 1 in 200? Maybe more but yet everyone is saying it can be done so why is this so different? I still haven't really seen any response other than a stat I already know?

being FI vs being a successful stock picker are not comparable:

Everyone in the world can become FI w/o impeding the ability of others to become FI. Only half the dollars invested can beat the index, the other half MUST lose to the index. There's no way around that. It's a closed system, in order to be above average someone else must be below average. So while it may be rare to be FI, you being FI does not impede anyone else from being FI, the two are not related. Me beating the market with $100k means that another $100k HAD to have lost to the market.

Very valid point, I just wonder why buffet would have 2 answers to my question if it was so impossible - he says a no nothing Investor should index but not necessarily for someone who is willing to be more focused - also he thinks it's way easier to be the average using modest sums.

I personally thinks it is really hard due to to emotional reason not ability reasons - that is probably why I will stick to indexing

I don't know Warren personally but I believe that when he is positive towards people taking an active role in investing he is just being an optimist and a likeable person. I would bet that deep down he is very skeptical that anyone can consistently beat the market like he has had the fortune of doing. I would bet that he would tell anyone he truly cares about to just index and not get involved w/ all the noise. He is being humble saying that others can do what he has done or at least come close. What else is he to say? "No, you cannot be successful like me so don't even try"? He's too nice a guy for that.
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 26, 2018, 12:09:17 AM
Hedge fund managers spend a lot of time on this, but they aren't experts on the products and services businesses offer. I'd bet that a SW engineer or sysad that has read Ben Graham's books would do a much better job picking tech stocks than a hedge fund manager.

Yeah, I respectfully disagree here. Hedge funds already employ PhDs, engineers, software geeks, other insiders, etc. etc. They employ anyone they think will give them an edge. The fact is, if someone actually had insight into what the market would do they would be the richest person in the world (by far). If anyone had even a 51% chance of beating the market, they'd be getting paid millions working for a hedge fund and all of that "out performance" would be sucked up by the 2/20 fee.
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 26, 2018, 12:12:47 AM
one more point, sorry for all the posts :

I would think you'd be far more profitable to focus on the asset classes you'd like to invest in vs individual stocks. Markowitz came up w/ the efficient frontier and won a noble prize for it. Basically, in order to get higher long-term returns you need to take on more risk. You can do this by using leverage or you can simply invest in riskier assets. But you want to remove the risk of picking the wrong individual stocks. You only want to be exposed to the market risk and other factors (ie small, value) to the extent that you are comfortable.

So, if you really want to make more money in the long-term, learn about the volatility of the different segments of the stock market (ie small cap vs large cap, emerging markets vs developed etc), figure out how much volatility you can stomach and then invest accordingly.
Title: Re: Why is active stock picking so taboo on here ?
Post by: triangle on February 26, 2018, 02:05:34 AM
If you read Berkshires shareholder letter from last weekend http://www.berkshirehathaway.com/letters/2017ltr.pdf   I think you might find that Warren and associates are finding it difficult to find even 2 or 3 companies to invest in (for a concentrated purchase much less 6 or 7 companies). I state that based on news reporting of the meeting as I have not read the letter.

But I believe there is some mixing up between index buying vs buy-and-hold vs active trading vs hedge funds.  If I had some spare cash to deploy I would rather buy a small basket of value names for a long term hold rather than some index that may be concentrated too much in Amazon, Facebook, etc.  AMZN and FB are "good" companies but their valuations are at a point where it seems a lot of their future profits are factored into their current price. I may be totally wrong but I am not a willing buyer of these individual names...though my retirement savings are entirely in various indexes that include them. :).
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 26, 2018, 02:48:42 AM
If you read Berkshires shareholder letter from last weekend http://www.berkshirehathaway.com/letters/2017ltr.pdf   I think you might find that Warren and associates are finding it difficult to find even 2 or 3 companies to invest in (for a concentrated purchase much less 6 or 7 companies). I state that based on news reporting of the meeting as I have not read the letter.

But I believe there is some mixing up between index buying vs buy-and-hold vs active trading vs hedge funds.  If I had some spare cash to deploy I would rather buy a small basket of value names for a long term hold rather than some index that may be concentrated too much in Amazon, Facebook, etc.  AMZN and FB are "good" companies but their valuations are at a point where it seems a lot of their future profits are factored into their current price. I may be totally wrong but I am not a willing buyer of these individual names...though my retirement savings are entirely in various indexes that include them. :).

hi buddy, thanks for joining in - i believe its hard for buffet due to scale, he states very clearly that if he were to only use modest sums he could get 50% returns with the graham approach and be able to find loads of companies to put his money to work, but he advises on paying a fair price for a wonderful company - fascinating really when you sit and think about it, hence why it prompted me to post this thought process.

Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 26, 2018, 03:00:39 AM
one more point, sorry for all the posts :

I would think you'd be far more profitable to focus on the asset classes you'd like to invest in vs individual stocks. Markowitz came up w/ the efficient frontier and won a noble prize for it. Basically, in order to get higher long-term returns you need to take on more risk. You can do this by using leverage or you can simply invest in riskier assets. But you want to remove the risk of picking the wrong individual stocks. You only want to be exposed to the market risk and other factors (ie small, value) to the extent that you are comfortable.

So, if you really want to make more money in the long-term, learn about the volatility of the different segments of the stock market (ie small cap vs large cap, emerging markets vs developed etc), figure out how much volatility you can stomach and then invest accordingly.

no need to apologise for posting mate - I have alot of researching to do i think, but i am not sure i buy into "only warren buffet can pick stock" he is famous because he has built an empire with his own hands doing it- but if you were making 30% returns on modest sums you wouldnt be on anyones radar to become famous due to scale?

if it really is that hard and hardly anyone can do it, fair enough seems to make no sense
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 26, 2018, 04:01:47 AM
But I believe there is some mixing up between index buying vs buy-and-hold vs active trading vs hedge funds.  If I had some spare cash to deploy I would rather buy a small basket of value names for a long term hold rather than some index that may be concentrated too much in Amazon, Facebook, etc.  AMZN and FB are "good" companies but their valuations are at a point where it seems a lot of their future profits are factored into their current price.

This I agree with. I think there are better ways to invest vs buying a total market fund. Buying a value index fund or even a small-cap value fund, for example, may offer higher long-term returns albeit with more volatility (the risk-adjusted return should be the same).
Title: Re: Why is active stock picking so taboo on here ?
Post by: Dicey on February 26, 2018, 05:24:59 AM
As regarding buying Berkshire...I would definitely do this but uffet and Munger's age is a real concern and the likelihood of them both being around over the next decade is rather slim...such a shame
Why is this a shame, exactly? Are you saying they somehow deserve to live longer than everyone else?
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 26, 2018, 06:13:12 AM
As regarding buying Berkshire...I would definitely do this but uffet and Munger's age is a real concern and the likelihood of them both being around over the next decade is rather slim...such a shame
Why is this a shame, exactly? Are you saying they somehow deserve to live longer than everyone else?

shame for us younger investors who dont really see any new buffet and mungers coming through who we can learn from - not sure why you question this the way you have but whatever
Title: Re: Why is active stock picking so taboo on here ?
Post by: Cpa Cat on February 26, 2018, 06:51:16 AM
I just want to point out that Warren Buffett did not get rich by working a day job and investing all his savings in 6 well-researched publicly traded stocks. He got rich by creating and running investment entities that took money from outside investors and then used it to buy controlling/influencial interests in well-positioned companies.

Can you buy enough Coke shares to be influential? No? Then you aren't really in the same league as Warren Buffett. The best you can do is buy what he does and hope that he will represent your interests well. Unfortunately, he's old, and there won't be many more opportunities.

Warren Buffett is the perfect example of, "If he's good at stock-picking, then why isn't he running a hedge fund?" Well, he was. Because he was good at it. So if you're good at it, why aren't you running one?

Imagine you're back in 1950, when Warren Buffett was graduating from Fancy Business School, and he came to you and asked, "Hey man, I think I might be good at this. Should I become a day trader, or should I partner with my Fancy Business School Buddy and become an investment manager, investing other people's money?" Would you have told him to become a day trader? Would you have said "You're brilliant, just choose 6 stocks and hold them long term. Can't lose." No, you would have said, "Go convince other people to hand you money and make a six figure management fee 'cause it's 1950 and the future is BRIGHT for dudes graduating from Fancy Business Schools in 1950."

Anyway - to answer your question - What this guy said:

Active stock picking is taboo here because, with some exceptions, this is place where empiricism lives and evidence matters. And the evidence seems to indicate that passive investing works much better for nearly everyone.
Title: Re: Why is active stock picking so taboo on here ?
Post by: ooeei on February 26, 2018, 07:14:57 AM
You can bet on individual companies to do better than average, but the fact is there are 1000 reasons they may fail that no analysis can take into account. Maybe the CEO gets caught sexually assaulting his secretary. Maybe someone records conditions at a foreign contractor's plant and they get pinned with it. Maybe a new fad/company starts up that takes a lot of their market share, or new regulations get passed that make it hard for them to succeed. Maybe scientists discover their products cause long term health problems. Maybe their batteries spontaneously combust in their latest product.

Warren Buffet has done a great job over the years, but his strategy was definitely not fool proof. He made a lot of money on some big bets over the years, and virtually all of them worked out for him. Just a few of those risky bets being failures instead of successes early in his career would have torched him. He is smart, he is dedicated, but he's not omniscient. He put himself in a position to take advantage of luck when he got it, and it worked out for him. Later in his career he got special deals where he gets a quantity discount on stocks of certain companies, and other special treatment.

If you want to be Warren Buffet, you have to take somewhat risky investments and hope the luck works out. It's like if you want to be a movie star like Brad Pitt, who most likely gives speeches about "always following your dreams and ignoring the haters" as most Hollywood A-listers do. If you want to be him, you have to do it, but be aware that level of success is not the only outcome to that strategy. You can do everything right and have it not work out for you. I guarantee you there are people who followed Brad Pitt's acting strategy the exact way he did who are now 57 year old waiters at restaurants. There are also people who followed Buffet's investment strategies who underperformed the market. You can't only listen to the success stories, because they always find a way to rationalize that it's due to something they did that they succeeded, and luck wasn't a large factor. I'm sure there are lottery winners out there who think their number picking strategy is their reason for success, but that doesn't make it true, even if they describe it in very fancy complicated terms.

You can be the best poker player in the world, but if the cards aren't working for you you can still lose, especially if you're playing against people with billion dollar companies constantly analyzing the game for them and you just play a few days a week after work and on weekends.

If you absolutely have to outperform the market, you have to get riskier than the market. Maybe it'll work out for you, then again, maybe it won't. Is the risk worth it to you?
Title: Re: Why is active stock picking so taboo on here ?
Post by: CorpRaider on February 26, 2018, 08:01:33 AM
Did you read his letter this weekend?  He's pretty much recommending indexing for all ("small and large") investors now. 

If you want to invest some of your money and time in selecting companies to see how you do (or as a hobby), you could just allocate a small percentage of your investable assets to that "bucket." 

You should also probably measure your performance against index funds to limit the risk you will delude yourself.  Finally, if you have a good run be cognizant of the potential to confuse luck and skill.

I could envision people who are better able to avoid/minimize the behavior gap (underperformance due to market timing/panics) by holding individual companies which they have researched and in which they have developed strong confidence.  In that (probably unusual) scenario, returns might be improved by active security selection. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: TheAnonOne on February 26, 2018, 09:06:36 AM
Even Buffet barely beat the SP500 this year (by maybe 1-2). I'd like to think I could vastly beat Buffet (and thus the market) but, honestly I can make better returns by simply working overtime, gaining new skills and taking on extra projects.

It wouldn't be until my stash was more like 25 times my INCOME (read: not expenses) before stock picking would even be worth it, and even then only if it was successful, which is questionable.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on February 26, 2018, 09:44:38 AM
Thanks for the insight guys

Honestly, I think it seems safer to save hard and index and then only risk any difference once I achieve FI

Starting at 40-43 once FI is still fairly young and I don't have to risk my well being to do it either
Title: Re: Why is active stock picking so taboo on here ?
Post by: yachi on February 26, 2018, 10:03:07 AM
I get the logic, 98% of normal people who don't care about this stuff should index due to the stats,

But what I would like to challenge is this, how many % of the wider public follow this advice and be financially free decades before anyone else? They are just as rare breed than the people who can successfully pick the stocks that outperform.

Warren buffet states that you should be extremely diversified if you don't have the time or patience to pick the stocks you understand, however he states that it's a terrible mistake to diversify if you bring the intensity and focus to the game and then you should only pick 6-7 stocks that you fully understand and know and you will do very well.

When buffet speaks I listen hard, and I get that at the moment I should just stick to the index fund deal, but are people who find this stuff very interesting making a big mistake by not picking a few winning stocks with the right focus ? Warren Buffet does think so and I don't consider this a man who wants people to lose my money
Buffet has been encouraging most everyone to invest in index funds while acknowledging the availability of outsized profits for those who understand security valuation.
If you're interested in this, I suggest you read through the entire book list for Columbia University's Value Investing course.  All the ones I've read have been excellent.  I would also suggest you teach yourself lots of accounting.  It's not magic that causes "all available information to be priced into a stock".  It's investors and money managers throwing additional money to stocks that happen to be miss-priced relative to the available information.  The pool is so competitive it looks like a stock adjusts immediately to new information.  If you keep to fishing in ponds that aren't large enough to attract commercial fisherman, you stand a better chance at catching a large fish.
Title: Re: Why is active stock picking so taboo on here ?
Post by: DS on February 26, 2018, 11:44:06 AM
Because it's the MMM forum, where people arrive after reading and supporting the blog's message.
Title: Re: Why is active stock picking so taboo on here ?
Post by: PDXTabs on February 26, 2018, 12:38:25 PM
1 in 200 professional money managers can consistently pick stocks. I don't like those odds, but if you do, it's your money.

Is this even a true statistic? Where'd you get it from? I wouldn't think it'd be even that high. And is that before or after trading costs and fees? AND, it is impossible to predict who is going to be that 1:200 ahead of time.

I agree that you can't see the future. The 1:200 is actually from Jack Bogle, but I slightly misquoted him. It's really 1:200 actively managed funds, which I use as a proxy for general investing ability for professional money managers.

If we go back to 1970, we find that there were approximately 400 funds in business and basically 330 or [3]40 have gone out of business. It turns out, in that period, there were two mutual funds who beat the market by more than 2 percent per year. Two! Thatís half of 1 percent of all the funds that started in the business. Those are your odds.  - John "Jack" Bogle, The Stupidest Thing You Can Do With Your Money (http://freakonomics.com/podcast/stupidest-money/)

EDITed to add: beating the market by 2% per year is important because you need to pay for the fees. I guess if you are managing your own portfolio you only need to beat the market enough to beat a low fee index fund.
Title: Re: Why is active stock picking so taboo on here ?
Post by: talltexan on February 26, 2018, 12:49:12 PM
Investing in individual stocks grants (on average) market returns with above-market risk. Suppose you have a position that's now down 20%. Are you still confident in it? Do you sell? Was something wrong in how you sized up the business initially? Your friends are all reminding you that you're not Warren Buffet. Perhaps you really aren't.

Even worse, you might have a position that's up 40%. Do you sell then? It could go up more...you might be right but for the wrong reason.

Part of playing the game is being able to handle the emotions of risk, and the risk with stock-picking is far in excess of the risk associated with indexing, where you can DCA fairly worry-free.
Title: Re: Why is active stock picking so taboo on here ?
Post by: PaulMaxime on February 26, 2018, 02:17:38 PM
I go against the grain on here personally.

I'm primarily an individual stock investor.

My investments have outperformed "the market" by about 2% per year on average. I track myself against the S&P 500 total return index because that includes dividends.

How do I do it?

I subscribe to investment advice from "The Motley Fool" to help me with my research.
I only invest in businesses for the long term (my longest stock holding is currently at 18 years)
I do the occasional options trade for additional income and upside.
I hold a pretty diversified list of investments so my single stock risk is minimized.

Commissions + advice in my case are << than I'd pay to Vanguard for investing in an index fund.

I would maintain that as a part time, business focused, small, individual investor I have lots of advantages over the professional money managers on Wall Street. The main two are my time frame - that I can be focused on the long term and not worry about the next quarter or year, and that I don't have to answer to anyone but myself. The professionals have to perform every day, week and quarter and if they underperform for even a short time, people are withdrawing their money. This is a toxic environment in which to operate.

I'm not going to share my trade history or account balances here. I just want to say that outperformance is not as daunting as most on here would lead you to believe.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Scandium on February 26, 2018, 02:29:25 PM
For supposedly being "taboo" there sure are a large number of threads on this subject, seems like a new one weekly..

I think you're confusing "taboo" with: people asking if/how to picking winning stocks. Being recommended they shouldn't, insisting that they should and asking why even after being told the reasons over and over.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Indexer on February 26, 2018, 03:48:20 PM
I'm fine with buying individual stocks if they can pass 2 tests.

1.)  Is it riskier than buying VTSAX?  If yes, go to question 2. This is easy, the answer is always yes.
2.) Do I have reason to believe this stock will grow so much faster than VTSAX that it will compensate me for all of the extra risk I'm taking?

If the answer is no or I don't know, don't buy the stock.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Travis on February 26, 2018, 04:27:09 PM
Hedge fund managers spend a lot of time on this, but they aren't experts on the products and services businesses offer. I'd bet that a SW engineer or sysad that has read Ben Graham's books would do a much better job picking tech stocks than a hedge fund manager.

Yeah, I respectfully disagree here. Hedge funds already employ PhDs, engineers, software geeks, other insiders, etc. etc. They employ anyone they think will give them an edge. The fact is, if someone actually had insight into what the market would do they would be the richest person in the world (by far). If anyone had even a 51% chance of beating the market, they'd be getting paid millions working for a hedge fund and all of that "out performance" would be sucked up by the 2/20 fee.

Why would a sysadmin have an inside track on picking tech stocks? Working in the industry does not make you automatically more insightful about it.  You'd still have to learn and understand all the financial aspects of that business that everybody else has access to and probably understands them better anyways.  You might be in a better position to know about your own company, but you're still having to learn about the competition.  I am an IT guy and I know the movers and shakers who supply the DoD with all of their toys, but I couldn't tell you with enough certainly to bet money on it which one is going to have significant profitability (better than market average after expenses) next year. Company A is going to sell thousands of computers and radios to the Army next year.  How much will that increase their stock price? No idea.  If I did know that, my experience in IT would not be the reason.  My knowledge top to bottom of how the company operates would be.
Title: Re: Why is active stock picking so taboo on here ?
Post by: lhamo on February 26, 2018, 06:16:40 PM
When we started our first "real" jobs after grad school, DH and I bought around $10k in individual stocks.  Only one (Ebay) did really well over the long term -- we put around $2k in, and after the PayPal spinoff those two stocks are now worth about 24k.  Microsoft has done ok the last few years -- put about $1500 into that and it is now worth around $5500 (would have been more if I had reinvested the dividend).   The rest of our picks have done virtually nothing or lost money -- Intel is about at what we paid for it, we made a few hundred bucks on buybacks of Dell, Staples and Cable and Wireless, and we lost about $2k on Worldcom and Nokia.

I just looked at a compounding calculator and if we had put the same amount of money in an index fund earning an average 7%/year over that period we would have around $36k at this point, or a bit more than our current balance of around $33k.

At around the same time, we started contributing to retirement funds at work -- not always maxed out, but at a decent level most years.  We were stuck with American Funds at work, but did Vanguard indexes or target retirement funds for our Roths.  I rolled my work 403bs over to Vanguard as soon as I could.  Total balance of retirement funds 18 years later is around $1.25 million.

Individual stocks can be fun to experiment with, but I'll happily take the index route for long-term investments.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Hargrove on February 26, 2018, 11:00:39 PM
"Can't I be the exception?" Yes, but you probably won't be.

"Isn't there a secret sauce?" Yes - lots of people gambling on one number on the roulette wheel means someone wins, but not because he cosmically chose the correct number. The kind of real knowledge which is blatantly insider trading is the kind of knowledge people like Buffet get on a morning conference call and which you, with your paid newsletter to Moneybucks.com, do not.

"But aren't Mustachians rare, exceptional people who could do this other, rare, exceptional thing??"

Two things that are rare are not automatically, therefore, comparable. You're confusing a hopeful values judgement with statistical probability. The answer to the question "can I beat the market?" is "yes." The answer the question "will I beat the market?" is "probably not." The answer to the question "will I beat the market over a long period of time?" is "almost certainly not."

"But I'm talented!"

Students getting straight As at Local High School who get a scholarship to Ivy League suddenly find out all their peers got straight As at Local High School, too. They are stricken to discover a whole paradigm shift in what "performance" and "achievement" even mean, where "talented" and "hardworking" are not interesting or exceptional - they're the very minimum bar. Plucky, smart go-getters are pretty handily attracted to multi-million-dollar hedge fund positions and fail. All. The. Time. You don't have their resources or expertise. Hell, we love the romantic "they told me I couldn't" stories so much it's almost a pathology. I'm reminded of the gag magazine cover "The doctor told me I'd never walk again and I have to commend him for his spot-on diagnosis." The price of testing your hypothesis is infinitely greater than index investing.

Index investing is like a horse race with 5 horses that have $10 bets and $60 payouts. Yeah, maybe you could pick the right horse. Or you could just win.
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 27, 2018, 12:01:49 AM
I go against the grain on here personally.

I'm primarily an individual stock investor.

My investments have outperformed "the market" by about 2% per year on average. I track myself against the S&P 500 total return index because that includes dividends.

How do I do it?

I subscribe to investment advice from "The Motley Fool" to help me with my research.
I only invest in businesses for the long term (my longest stock holding is currently at 18 years)
I do the occasional options trade for additional income and upside.
I hold a pretty diversified list of investments so my single stock risk is minimized.

Commissions + advice in my case are << than I'd pay to Vanguard for investing in an index fund.

I would maintain that as a part time, business focused, small, individual investor I have lots of advantages over the professional money managers on Wall Street. The main two are my time frame - that I can be focused on the long term and not worry about the next quarter or year, and that I don't have to answer to anyone but myself. The professionals have to perform every day, week and quarter and if they underperform for even a short time, people are withdrawing their money. This is a toxic environment in which to operate.

I'm not going to share my trade history or account balances here. I just want to say that outperformance is not as daunting as most on here would lead you to believe.

Thanks for the post. The only thing I keep coming back to is the laws of math. As a closed system, if you are outperforming then someone just like you, w/ the same $$$ amount invested, HAS to underperform by the exact same amount. It cannot work any other way. Now can you or anyone honestly say that your methods will outperform the methods other individual stock pickers will  use? Is Motley Fool advice not available to everyone else? Congratulations on beating the market, hopefully an extra 2% over a couple of decades has added significant wealth. However, going forward, I don't know how anyone can confidently say that they will be on the winning side vs the losing side w/o inside information. It's essentially a 50/50 bet, if everyone has the same information, before costs (which they do). After costs is far less than 50/50.

And, one thing people forget is the risk-adjusted return. How many positions do you hold? Are they all US domestic large caps or are some foreign, small cap? What has been the standard deviation in your returns? Comparing to the S/P 500 may not be the best comparison. We all can generate higher returns by 1) leveraging the S/P 500 or 2) investing in a riskier index such as the Russell 2000 or emerging markets. You have to take risk into account and I can guarantee that if you hold less than 500 positions you are not as diversified as the S/P (not that I promote investing in the S/P, I actually prefer small-cap value indexes).
Title: Re: Why is active stock picking so taboo on here ?
Post by: privatefarmer on February 27, 2018, 12:10:11 AM
Hedge fund managers spend a lot of time on this, but they aren't experts on the products and services businesses offer. I'd bet that a SW engineer or sysad that has read Ben Graham's books would do a much better job picking tech stocks than a hedge fund manager.

Yeah, I respectfully disagree here. Hedge funds already employ PhDs, engineers, software geeks, other insiders, etc. etc. They employ anyone they think will give them an edge. The fact is, if someone actually had insight into what the market would do they would be the richest person in the world (by far). If anyone had even a 51% chance of beating the market, they'd be getting paid millions working for a hedge fund and all of that "out performance" would be sucked up by the 2/20 fee.

Why would a sysadmin have an inside track on picking tech stocks? Working in the industry does not make you automatically more insightful about it.  You'd still have to learn and understand all the financial aspects of that business that everybody else has access to and probably understands them better anyways.  You might be in a better position to know about your own company, but you're still having to learn about the competition.  I am an IT guy and I know the movers and shakers who supply the DoD with all of their toys, but I couldn't tell you with enough certainly to bet money on it which one is going to have significant profitability (better than market average after expenses) next year. Company A is going to sell thousands of computers and radios to the Army next year.  How much will that increase their stock price? No idea.  If I did know that, my experience in IT would not be the reason.  My knowledge top to bottom of how the company operates would be.

Bingo. And if you did have inside-information that would be insider trading which could land you in prison (Martha Stewart). I'm sure it happens all the time and goes unnoticed by the SEC. But if you do work for a fortune 500 company and know something the general public does not, you probably are better off not acting on it.
Title: Re: Why is active stock picking so taboo on here ?
Post by: talltexan on February 27, 2018, 06:17:32 AM
Re: the insider trading...

I used to think doing something that was against the law was breaking the law. I've learned over time that you're breaking the law when you're in jail or paying a judgment. Unless you have wealth/fame in the neighborhood of Ms. Stewart's, or you have regulatory authority over a company, you probably should feel free to use whatever information you have to invest.
Title: Re: Why is active stock picking so taboo on here ?
Post by: ooeei on February 27, 2018, 07:36:18 AM
Index investing is like a horse race with 5 horses that have $10 bets and $60 payouts. Yeah, maybe you could pick the right horse. Or you could just win.

What a great way to put it.
Title: Re: Why is active stock picking so taboo on here ?
Post by: PaulMaxime on February 27, 2018, 07:55:48 AM
I go against the grain on here personally.

I'm primarily an individual stock investor.

My investments have outperformed "the market" by about 2% per year on average. I track myself against the S&P 500 total return index because that includes dividends.

How do I do it?

I subscribe to investment advice from "The Motley Fool" to help me with my research.
I only invest in businesses for the long term (my longest stock holding is currently at 18 years)
I do the occasional options trade for additional income and upside.
I hold a pretty diversified list of investments so my single stock risk is minimized.

Commissions + advice in my case are << than I'd pay to Vanguard for investing in an index fund.

I would maintain that as a part time, business focused, small, individual investor I have lots of advantages over the professional money managers on Wall Street. The main two are my time frame - that I can be focused on the long term and not worry about the next quarter or year, and that I don't have to answer to anyone but myself. The professionals have to perform every day, week and quarter and if they underperform for even a short time, people are withdrawing their money. This is a toxic environment in which to operate.

I'm not going to share my trade history or account balances here. I just want to say that outperformance is not as daunting as most on here would lead you to believe.

Thanks for the post. The only thing I keep coming back to is the laws of math. As a closed system, if you are outperforming then someone just like you, w/ the same $$$ amount invested, HAS to underperform by the exact same amount. It cannot work any other way. Now can you or anyone honestly say that your methods will outperform the methods other individual stock pickers will  use? Is Motley Fool advice not available to everyone else? Congratulations on beating the market, hopefully an extra 2% over a couple of decades has added significant wealth. However, going forward, I don't know how anyone can confidently say that they will be on the winning side vs the losing side w/o inside information. It's essentially a 50/50 bet, if everyone has the same information, before costs (which they do). After costs is far less than 50/50.

And, one thing people forget is the risk-adjusted return. How many positions do you hold? Are they all US domestic large caps or are some foreign, small cap? What has been the standard deviation in your returns? Comparing to the S/P 500 may not be the best comparison. We all can generate higher returns by 1) leveraging the S/P 500 or 2) investing in a riskier index such as the Russell 2000 or emerging markets. You have to take risk into account and I can guarantee that if you hold less than 500 positions you are not as diversified as the S/P (not that I promote investing in the S/P, I actually prefer small-cap value indexes).

You are right that for me or anyone to outperform that someone else has to underperform. Luckily the average investor underperforms by about 4% a year. Someone is capturing that outperformance might as well be me.

The big issue is not really stock picking per se. The big issue is human psychology and behavior. One of the posters in this thread said he lost money on Apple stock. If you bought and held Apple stock for nearly any reasonable period of time (like over several years) since Steve Jobs returned to the company it would have been hard to lose money. You had a huge tailwind. The only way to lose money in that stock is to buy and sell at the wrong time.

Sure, good advice is available to everyone. Do people follow it? Even on here, the high church of buy and hold asset allocation index investing (well that's probably bogleheads but this is close) you see posts from people who are questioning their asset allocation and panicking when the market drops a few percentage points.

Title: Re: Why is active stock picking so taboo on here ?
Post by: ChpBstrd on February 27, 2018, 12:53:00 PM
Here we are in a forum full of self-made millionaires. Just ask for a show of hands who acheived FIRE by:

a) Index investing and aggressive saving
b) Picking a future "100-bagger" stock
c) Casino or lottery gambling
d) Buying penny stocks promoted on junk faxes at work

I bet you get by far the most hands up for (a), the second most for (b), the third most for (c), and certainly none for (d).

The point: there are many ways to get rich, but the odds of success vary enormously depending on the strategy you pursue. Option (a) has a probability of 90-100% of making you a millionaire in 15 years. Given the smaller number of success stories, what do you suppose the odds are for (b), (c), and (d)?
Title: Re: Why is active stock picking so taboo on here ?
Post by: Indexer on February 27, 2018, 06:03:39 PM

I bet you get by far the most hands up for (a), the second most for (b), the third most for (c), and certainly none for (d).


I think you are being far too generous. ;-)  It's probably >99% A, <1% B, and no C or D.

The few Bs are probably employees of tech start ups that got bought by the FANGs.
Title: Re: Why is active stock picking so taboo on here ?
Post by: BTDretire on February 28, 2018, 08:52:12 AM
I get the logic, 98% of normal people who don't care about this stuff should index due to the stats,

But what I would like to challenge is this, how many % of the wider public follow this advice and be financially free decades before anyone else? They are just as rare breed than the people who can successfully pick the stocks that outperform.

Warren buffet states that you should be extremely diversified if you don't have the time or patience to pick the stocks you understand, however he states that it's a terrible mistake to diversify if you bring the intensity and focus to the game and then you should only pick 6-7 stocks that you fully understand and know and you will do very well.

When buffet speaks I listen hard, and I get that at the moment I should just stick to the index fund deal, but are people who find this stuff very interesting making a big mistake by not picking a few winning stocks with the right focus ? Warren Buffet does think so and I don't consider this a man who wants people to lose my money
I think you have it well in hand, just "Pick a Few winning stocks"
Oh, and please tell me which ones those are, I want to outperform the market too!
                                Thanks
Title: Re: Why is active stock picking so taboo on here ?
Post by: DarkandStormy on February 28, 2018, 09:55:35 AM
82% of active fund managers underperform their indexes over 10 years (it might be 15 years, I forget).

Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

So, sure...follow his advice.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Kyle B on February 28, 2018, 11:44:45 AM
The big issue is not really stock picking per se. The big issue is human psychology and behavior.
This is me all over.

Seemingly every time I've bought stocks in the past, any dip has led me to sell in a panic, locking in my loss.

A few months back I did buy some AMZN, which has turned out well.  But even that pick proved how unsuited I am for stock-picking, as it went down immediately after I got in and stayed down for months.  And I really, really, really wanted to dump it.

I finally think it's enough in the black that I will be able to hold on during future drops.  But I don't have the right psychology for stocks at all.

Quote from: Charlie Munger
ďif youíre not willing to react with equanimity to a market price decline of 50% two or three times a century youíre not fit to be a common shareholder and you deserve the mediocre result youíre going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.Ē
Title: Re: Why is active stock picking so taboo on here ?
Post by: dougules on February 28, 2018, 12:34:49 PM
I go against the grain on here personally.

I'm primarily an individual stock investor.

My investments have outperformed "the market" by about 2% per year on average. I track myself against the S&P 500 total return index because that includes dividends.

How do I do it?

I subscribe to investment advice from "The Motley Fool" to help me with my research.
I only invest in businesses for the long term (my longest stock holding is currently at 18 years)
I do the occasional options trade for additional income and upside.
I hold a pretty diversified list of investments so my single stock risk is minimized.

Commissions + advice in my case are << than I'd pay to Vanguard for investing in an index fund.

I would maintain that as a part time, business focused, small, individual investor I have lots of advantages over the professional money managers on Wall Street. The main two are my time frame - that I can be focused on the long term and not worry about the next quarter or year, and that I don't have to answer to anyone but myself. The professionals have to perform every day, week and quarter and if they underperform for even a short time, people are withdrawing their money. This is a toxic environment in which to operate.

I'm not going to share my trade history or account balances here. I just want to say that outperformance is not as daunting as most on here would lead you to believe.

How much time do you spend on it?  Most of use are looking to get to FIRE.  If you're spending a lot of time and effort on it then it's just another job and you're negating the RE part of it. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on February 28, 2018, 01:44:27 PM
So my personal story is this.

I did a LOT of reading and did a LOT of learning on stocks and value investing.  I helped start and run a couple investment clubs over about 10 years.  We as a group did a ton of research, certainly compared to the average investor.  We had stock analysis tools from the NAIC and perused reports and ran numbers religiously.  We burned a lot of our time and energy on trying to outperform the market, and ...... we just about stayed even. 

I get that 1-2% better than the market as Paul does is nothing to sneeze at, but having lived probably only a portion of the work he puts into it, the group of 20 of us that did it together for a decade determined it was in no way worth the effort. 

If like Buffet, you get your jollies out of reading annual reports and churning numbers and meeting with corporate boards and doing loads of work, then by all means, go have fun.  But if like most of us you are investing to make money do do the things that provide your jollies, it is way, way, way simpler and likely to be successful by index investing. 

After buying into the Kool Aid for the better part of twenty years I switched to index investing ten years ago and never looked back and I've had a lot more fun in life since then because I got hours back each week that I did not need to spend trying to find some needle in a stock market that would help me earn an extra 1%.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 01, 2018, 12:54:08 AM
So my personal story is this.

I did a LOT of reading and did a LOT of learning on stocks and value investing.  I helped start and run a couple investment clubs over about 10 years.  We as a group did a ton of research, certainly compared to the average investor.  We had stock analysis tools from the NAIC and perused reports and ran numbers religiously.  We burned a lot of our time and energy on trying to outperform the market, and ...... we just about stayed even. 

I get that 1-2% better than the market as Paul does is nothing to sneeze at, but having lived probably only a portion of the work he puts into it, the group of 20 of us that did it together for a decade determined it was in no way worth the effort. 

If like Buffet, you get your jollies out of reading annual reports and churning numbers and meeting with corporate boards and doing loads of work, then by all means, go have fun.  But if like most of us you are investing to make money do do the things that provide your jollies, it is way, way, way simpler and likely to be successful by index investing. 

After buying into the Kool Aid for the better part of twenty years I switched to index investing ten years ago and never looked back and I've had a lot more fun in life since then because I got hours back each week that I did not need to spend trying to find some needle in a stock market that would help me earn an extra 1%.

Hi mate, yes I think I will stick to the indexes to get me FI and only look for a winner as a hobby with all my new found spare time without risking my principle to stay FI

At least I know I enjoy the topic and is another form of interest that will keep me more than occupied if I want to

You need a lump of capital anyway to make it work properly so I may aswell do the sensible thing first and stick to indexing
Title: Re: Why is active stock picking so taboo on here ?
Post by: Car Jack on March 01, 2018, 06:49:05 AM
I talk with people who think that they have some insight that will allow them to make money on the stock market.  Like the guy who tells me "Hey Jack, boomers are aging out and will need medical stuff and drugs and rehab equipment.  I'm going to put big money on a bunch of medical companies because it's a sure thing that they're going up".  I just shake my head.  What Einstein here is doing isn't even "chasing the puck" (putting your money on where the market just was).  He's trying to get into the arena for a hockey game that was played 10 years ago.  But he thinks that because the light bulb just went off in his head (clearly not the brightest bulb in the bunch), that he has a winning strategy.

A lot of stock pickers these days are transistors and programs to tell these transistors what to do.  Even if you hear the Fed Chair in person and have a box in front of you to hit a green "buy" or a red "sell", and hit it when the Chair speaks of interest rate direction, you'll be 100 ms too late.  By then $100B has traded in and out of the market, taking profit, calculating fees and transferring gains to the bank.  You hit the button and lose.

It's gambling, pure and simple for us mortal people.  If you have to gamble, then buy a lottery ticket.  At least some of that money pays for our schools. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: triangle on March 01, 2018, 06:57:47 AM
So my personal story is this.

I did a LOT of reading and did a LOT of learning on stocks and value investing.  I helped start and run a couple investment clubs over about 10 years.  We as a group did a ton of research, certainly compared to the average investor.  We had stock analysis tools from the NAIC and perused reports and ran numbers religiously.  We burned a lot of our time and energy on trying to outperform the market, and ...... we just about stayed even. 

I get that 1-2% better than the market as Paul does is nothing to sneeze at, but having lived probably only a portion of the work he puts into it, the group of 20 of us that did it together for a decade determined it was in no way worth the effort. 

If like Buffet, you get your jollies out of reading annual reports and churning numbers and meeting with corporate boards and doing loads of work, then by all means, go have fun.  But if like most of us you are investing to make money do do the things that provide your jollies, it is way, way, way simpler and likely to be successful by index investing. 

After buying into the Kool Aid for the better part of twenty years I switched to index investing ten years ago and never looked back and I've had a lot more fun in life since then because I got hours back each week that I did not need to spend trying to find some needle in a stock market that would help me earn an extra 1%.
I believe the scale or the amount of money involved also makes a significant difference. If one saves $10K in year 1, followed by $11K year 2, and so on; then outpacing the indexes by 1% does not lead to an outsided amount in ones investment account in the early years.

But if one has $1000K or some other big amount to manage then a small percentage increase in returns can matter. Meaning it might be worth reading annual reports, 10Ks and such, if that is your interest and passion instead of going to the movies or watching the latest sporting event. I am not suggesting that anyone should be their own investment manager after reaching some net worth mark, just that it is good to be more engaged if one has the time and aptitude.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Travis on March 01, 2018, 12:14:01 PM
I talk with people who think that they have some insight that will allow them to make money on the stock market.  Like the guy who tells me "Hey Jack, boomers are aging out and will need medical stuff and drugs and rehab equipment.  I'm going to put big money on a bunch of medical companies because it's a sure thing that they're going up".  I just shake my head.  What Einstein here is doing isn't even "chasing the puck" (putting your money on where the market just was).  He's trying to get into the arena for a hockey game that was played 10 years ago.  But he thinks that because the light bulb just went off in his head (clearly not the brightest bulb in the bunch), that he has a winning strategy.

A lot of stock pickers these days are transistors and programs to tell these transistors what to do.  Even if you hear the Fed Chair in person and have a box in front of you to hit a green "buy" or a red "sell", and hit it when the Chair speaks of interest rate direction, you'll be 100 ms too late.  By then $100B has traded in and out of the market, taking profit, calculating fees and transferring gains to the bank.  You hit the button and lose.

It's gambling, pure and simple for us mortal people.  If you have to gamble, then buy a lottery ticket.  At least some of that money pays for our schools.

Exactly.  If you have a bright idea about the market, it's probably a good bet someone else had it first, plugged it into a supercomputer, and the good money flew away by the time you finished your breakfast.  If CNBC is giving you stock advice, it was useful a week ago.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Mighty-Dollar on March 01, 2018, 08:06:18 PM
Why is active stock picking so taboo on here ?
The professionals on Wall Street can't beat the indexes after fees, so why would you do any better?
(http://investingadvicewatchdog.com/images/chart-active-manage.jpg)
Title: Re: Why is active stock picking so taboo on here ?
Post by: PaulMaxime on March 01, 2018, 09:45:26 PM

How much time do you spend on it?  Most of use are looking to get to FIRE.  If you're spending a lot of time and effort on it then it's just another job and you're negating the RE part of it.

I tend to buy things and hold them for a long time - years. I maybe buy one or two things a month with my incoming cash. I might also make a few options trades now and then, like when the market just dropped recently I made a trade on one of my long term winners Arista Networks.

I track the value of my portfolio monthly against the S&P 500 Total Return index which means I have a spreadsheet that takes my balances and cash flows for the month - so with 6 accounts (Two taxable, IRA, Roth IRA, Inherited IRA and 401K) that's maybe 15 minutes.

I spend a couple hours a week on research and chatting about it with other people. Not a big time committment. But I do pay to have my research outsourced, so that makes it easier - I wait for recommendations from TMF thought I do sometimes buy a stock on my own.

It's a hobby for me, but not all consuming. It's fun to learn about business and investing for me.

But I also cook, bike and hike, travel, go to the gym, sing opera and teach cocktail classes and throw cocktail parties in addition to my day job as a software engineer - so it's not like I treat it like a second job.

The picture people have in your mind of someone who stares at the screen making trades all the time is not reality. Those people are getting eaten alive by transaction costs and the program traders. If you take a much more languid pace with this and allow winners to compound over time it's really not bad.
Title: Re: Why is active stock picking so taboo on here ?
Post by: PaulMaxime on March 01, 2018, 09:54:58 PM

Everyone in the world can become FI w/o impeding the ability of others to become FI. Only half the dollars invested can beat the index, the other half MUST lose to the index. There's no way around that. It's a closed system, in order to be above average someone else must be below average. So while it may be rare to be FI, you being FI does not impede anyone else from being FI, the two are not related. Me beating the market with $100k means that another $100k HAD to have lost to the market.

The average investor underperforms the market by a pretty large margin due to bad behavior. Don't feel bad about outperforming. Even if you are just matching the market you are already beating most investors. I don't understand that attitude - people are making their own choices. If I bought Netflix in 2012 for $10 and held on to it for several years and it's now $290.00 a share am I hurting anyone else? It's not like you are pulling the money out of their pocket directly.

https://www.ifa.com/articles/dalbar_2016_qaib_investors_still_their_worst_enemy/
Title: Re: Why is active stock picking so taboo on here ?
Post by: PaulMaxime on March 01, 2018, 09:58:14 PM

I bet you get by far the most hands up for (a), the second most for (b), the third most for (c), and certainly none for (d).


I think you are being far too generous. ;-)  It's probably >99% A, <1% B, and no C or D.

The few Bs are probably employees of tech start ups that got bought by the FANGs.

Definitely aggressive saving.

100 baggers? Well as a part of a diversified long term buy and hold portfolio your bound to have a few big winners, but it's not like I'm putting all my money on Red on the roulette wheel. 12 - 18 stocks is enough to diversify away most market risk.

If I had stuck to index funds I could have reached FI for sure. But I'm way ahead of where I would have been if I had done that. To each his own. It has been worth it for me to learn how to do this myself.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 02, 2018, 01:05:17 AM
Wall Street traders don't buy and hold they trade like crazy, I don't believe that is comparing apples with apples

For a forum that's based on huge positive and also unlikely things like FI happening statistically, when it comes to investing there is a very defeatist attitude when it comes to investing

I actually don't rate mmm investing posts really i don't think he has done enough of them to give people enough confidence to be putting loads of of their net worth in them - I have had to do a ton load of research afterwards.

I think I may give it a go when I don't need to be concerned about money, untill then if I can get the average performance of 9% over the next decade that will do fine, what prompted me to start this post was alot of sensible guys decade predictions think we will only get around 4% after inflation so 7% nominal -

I also get that nobody knows either and cannot predict but even mmm assumes a recession is going to hit very soon
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on March 02, 2018, 05:43:27 AM
Wall Street traders don't buy and hold they trade like crazy, I don't believe that is comparing apples with apples

For a forum that's based on huge positive and also unlikely things like FI happening statistically, when it comes to investing there is a very defeatist attitude when it comes to investing

I actually don't rate mmm investing posts really i don't think he has done enough of them to give people enough confidence to be putting loads of of their net worth in them - I have had to do a ton load of research afterwards.

I think I may give it a go when I don't need to be concerned about money, untill then if I can get the average performance of 9% over the next decade that will do fine, what prompted me to start this post was alot of sensible guys decade predictions think we will only get around 4% after inflation so 7% nominal -

I also get that nobody knows either and cannot predict but even mmm assumes a recession is going to hit very soon

FI isnt something thats unlikely its measureable and predictable can you please stop comparing something that is 100% in a persons control Spending to saving ratio - to stock picking.  Its been pointed out to you many times here that its highly unlikely you'll be able to do this regardless of how much capital you have - its a natural human reaction to be afraid of losses and want to minimize them and beat the market - but the sooner you dig into the historical data and realize its likely a losing game the better off you will be.  MMM doesnt dig into investing other than indexing b/c there really isnt much else to say.  MadFientist has dug deep into withdrawal strategies and optimized ways of saving - MMM focus more on changing your lifestyle to minimize your costs. 

Your concept that you'll give it a go when you dont care about money means 1 of 2 things

1. You're going to end up working longer and over saving so you have this "play money"
2. You're going to end up working til 4% and throwing some money into whatever system you think is going to work and you're likely going to end up losing if we assume you're as good as the chart above you have an 18% chance of being successful vs the market over any given 5 year period.  now we extrapolate that to a 30 year FIRE and you have a ~.0034*% chance of being successful over that time. 

As was said above its better to build a gambling budget and spend it at the casino than the game you're trying to play.  I played it for 17 years when i had a ton of time on my hands to research(school was easy i didnt have to study i traded/researched stocks) from the time i was 10 til i was 27 and found this blog - i beat the market by a total of 1% over this time frame.  its not worth the time or the effort and i was mostly lucky.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Mr. Boh on March 02, 2018, 09:09:26 AM
FI isnt something thats unlikely its measureable and predictable can you please stop comparing something that is 100% in a persons control Spending to saving ratio - to stock picking.  Its been pointed out to you many times here that its highly unlikely you'll be able to do this regardless of how much capital you have - its a natural human reaction to be afraid of losses and want to minimize them and beat the market - but the sooner you dig into the historical data and realize its likely a losing game the better off you will be.  MMM doesnt dig into investing other than indexing b/c there really isnt much else to say.  MadFientist has dug deep into withdrawal strategies and optimized ways of saving - MMM focus more on changing your lifestyle to minimize your costs. 

Your concept that you'll give it a go when you dont care about money means 1 of 2 things

1. You're going to end up working longer and over saving so you have this "play money"
2. You're going to end up working til 4% and throwing some money into whatever system you think is going to work and you're likely going to end up losing if we assume you're as good as the chart above you have an 18% chance of being successful vs the market over any given 5 year period.  now we extrapolate that to a 30 year FIRE and you have a ~.0034*% chance of being successful over that time. 

As was said above its better to build a gambling budget and spend it at the casino than the game you're trying to play.  I played it for 17 years when i had a ton of time on my hands to research(school was easy i didnt have to study i traded/researched stocks) from the time i was 10 til i was 27 and found this blog - i beat the market by a total of 1% over this time frame.  its not worth the time or the effort and i was mostly lucky.

I find it interesting that you insist that it is almost impossible to beat the market but then admit that you yourself did just exactly that. I agree that it is not easy but people do it all the time. One important factor that usually gets glossed over if that many active managers do in fact beat the market before fees. It's only after fees are subtracted that they fail to beat the market.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 02, 2018, 09:37:22 AM
To the OP, you are not a special snowflake.  You think you can pick stocks better than the average person.  You cannot.  There's only one Warren Buffet and I hate to break it to you, but it's not you.  One thing that isn't emphasized enough is just how risky individual stocks are.  If an index drops ten to twenty percent, that's about as bad as it gets.  But individual stocks?  It can drop WAY, WAY, WAY more than 20%.  Here's a nice reminder I keep around anytime I think "I'm smarter than the average bear, I can beat the market!":

(https://imgs.xkcd.com/comics/engineer_syllogism.png)
Title: Re: Why is active stock picking so taboo on here ?
Post by: simonsez on March 02, 2018, 09:51:40 AM
if we assume you're as good as the chart above you have an 18% chance of being successful vs the market over any given 5 year period.  now we extrapolate that to a 30 year FIRE and you have a ~.0034*% chance of being successful over that time. 

As was said above its better to build a gambling budget and spend it at the casino than the game you're trying to play.  I played it for 17 years when i had a ton of time on my hands to research(school was easy i didnt have to study i traded/researched stocks) from the time i was 10 til i was 27 and found this blog - i beat the market by a total of 1% over this time frame.  its not worth the time or the effort and i was mostly lucky.

I find it interesting that you insist that it is almost impossible to beat the market but then admit that you yourself did just exactly that. I agree that it is not easy but people do it all the time. One important factor that usually gets glossed over if that many active managers do in fact beat the market before fees. It's only after fees are subtracted that they fail to beat the market.
a) This is the internet - anyone can make any claim about their performance.  Humans tend to overstate the gains and mitigate blabbing about the losses.  I'm not calling any individual a liar but I take most growth rates and holding/selling claims with a grain of salt.  I also am sure some are truly beating the market, and they really have nothing to gain by stating all their positions publicly just for establishing internet legitimacy.

2) 5 years is not a typical lifetime nor is 17 as boarder42 pointed out.  The odds on time horizons of 30 years and far beyond is what matters since we typically start investing in our 20s or younger and will be involved in some way in the market until death hopefully many years later.  Yes people beat the market all the time but it's rarely the same person or entity year after year for decades.

d) I'd wager that there are several thousand threads on this forum that talk about the fees.  You can't avoid the fees.  Obviously if Fund A has higher fees compared to Fund B, Fund A compared more favorably before you considered the fees...but why wouldn't you gloss over the pre-fee number regardless of which one higher at that point?  The net result is what matters.
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on March 02, 2018, 11:29:03 AM
if we assume you're as good as the chart above you have an 18% chance of being successful vs the market over any given 5 year period.  now we extrapolate that to a 30 year FIRE and you have a ~.0034*% chance of being successful over that time. 

As was said above its better to build a gambling budget and spend it at the casino than the game you're trying to play.  I played it for 17 years when i had a ton of time on my hands to research(school was easy i didnt have to study i traded/researched stocks) from the time i was 10 til i was 27 and found this blog - i beat the market by a total of 1% over this time frame.  its not worth the time or the effort and i was mostly lucky.

I find it interesting that you insist that it is almost impossible to beat the market but then admit that you yourself did just exactly that. I agree that it is not easy but people do it all the time. One important factor that usually gets glossed over if that many active managers do in fact beat the market before fees. It's only after fees are subtracted that they fail to beat the market.
a) This is the internet - anyone can make any claim about their performance.  Humans tend to overstate the gains and mitigate blabbing about the losses.  I'm not calling any individual a liar but I take most growth rates and holding/selling claims with a grain of salt.  I also am sure some are truly beating the market, and they really have nothing to gain by stating all their positions publicly just for establishing internet legitimacy.

2) 5 years is not a typical lifetime nor is 17 as boarder42 pointed out.  The odds on time horizons of 30 years and far beyond is what matters since we typically start investing in our 20s or younger and will be involved in some way in the market until death hopefully many years later.  Yes people beat the market all the time but it's rarely the same person or entity year after year for decades.

d) I'd wager that there are several thousand threads on this forum that talk about the fees.  You can't avoid the fees.  Obviously if Fund A has higher fees compared to Fund B, Fund A compared more favorably before you considered the fees...but why wouldn't you gloss over the pre-fee number regardless of which one higher at that point?  The net result is what matters.

i know in general this thread is about beating the market but my major point in my statement i should have emphasized more is

FI's rarity has nothing to do with the rarity seen when people try to beat the market. 

FI is rare because its outside of a societal norm to do the things necessary to be FI.  And passive index investing would actually be a better comparison to FI b/c its outside a societal norm for humans to dump their money into an index fund and just let it ride and not sell it till you're retired or need it for something.  vs selling based on market conditions or projections or valuations.

So i think not only are you misrepresenting FI's correlation to stock picking in the fact that its rare you're actually correlating it 100% opposite of where the real correlation lies.

a correlation based on rarity is not a good way to make a comparison.

Gold is rare so are the people who seek FIRE.  therefore we should invest in gold
BTC is rare so is gold therefore i should invest in BTC
VCR's are rare so are people who seek FIRE therefore i should invest in VCRs.

I also dont think index investing is a defeatist attitude - if anything the data above shows its a winners attitude.  Add to that the time you must spend to attempt to beat the market on the outside chance you beat it and thats a lot of negative equity there compared to passively investing.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 02, 2018, 12:09:05 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!
Title: Re: Why is active stock picking so taboo on here ?
Post by: PaulMaxime on March 02, 2018, 12:26:13 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

10 year forecasts are all bogus. As are 1 year forecasts.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 02, 2018, 12:27:48 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

You have short term mentality.  Don't worry, lots of people do.  Re: 4% returns for a decade?  So what?  How about the next 20 or 30 years?  Still 4%? 

OK, I'll concede the point for a second.  If 4% is the best indexing can do over the next decade, then what's the alternative?  If you say "pick individual stocks", you have to understand that you're moving from something with very low risk (buy and hold indexing) to something with very HIGH risk.  So you might make a better return.  Maybe you make 10% instead of 4%.  Whooppee.  You might also LOSE 40% or MORE!!!!!!  That is WAY more likely to kill FI and RE than plodding along at a super-safe 4% returns.

In other words, stop taking the short view and engaging in risky behavior under the mistaken idea that stock picking is the right answer to lower than average expected returns. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on March 02, 2018, 12:29:42 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

no one can predict future returns there are always some talking heads saying something about the forecast for the next "x" years ... no one has a crystal ball.  the only semi predictable horizon is avg returns over 30 years based on history.  but that doesnt mean we can know what will happen - 10 year returns are all over the map - when the market is full steam ahead and climbing higher and higher its pretty easy to say the returns will be lower than expected.

If they are correct how do you think you will beat the market- there will be more stocks making less money or losing money to get the market to produce less. 

You're talking from a state of poor experience and understanding and thinking you're different or better than the next guy. you're not - could you get lucky and beat the market yes - but its not very likely.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Travis on March 02, 2018, 12:34:39 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

The same rules and concerns discussed here about beating the market apply whether average returns are 2, 4, or 20%.  If the market is having a barely profitable year, then 50% of folks are probably in the negative.  Why does that change your odds?
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on March 02, 2018, 01:49:45 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

The same rules and concerns discussed here about beating the market apply whether average returns are 2, 4, or 20%.  If the market is having a barely profitable year, then 50% of folks are probably in the negative.  Why does that change your odds?

b/c i dont wanna lose money!!! and i'm smarter than the avg person so therefore i'm going to be in the 50% that make money!!! you just dont get it
Title: Re: Why is active stock picking so taboo on here ?
Post by: koshtra on March 02, 2018, 02:07:33 PM
A good resource, if you want to stock-pick, is Investing at Level3. He thinks you ought to be able to beat the S&P 500 by a couple percentage points if you do your homework and fish where there are fish (generally that means buying stock in companies whose capitalization is so small that it's not worth big investors' time to research them.)

But it really takes a ton of time to do it properly. If you like it, sure, go for it, but you probably get a better return on the investment of your time by improving your earning and frugality skills.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 02, 2018, 02:56:44 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

10 year forecasts are all bogus. As are 1 year forecasts.

I.hope they are mate all I want is the average during the next decade! The better the returns the quicker I achieve FI...I know it will be fine longer term but I want FI asap
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 02, 2018, 03:57:41 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

10 year forecasts are all bogus. As are 1 year forecasts.

I.hope they are mate all I want is the average during the next decade! The better the returns the quicker I achieve FI...I know it will be fine longer term but I want FI asap

Whatís your current savings rate?
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on March 02, 2018, 04:17:09 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

10 year forecasts are all bogus. As are 1 year forecasts.

I.hope they are mate all I want is the average during the next decade! The better the returns the quicker I achieve FI...I know it will be fine longer term but I want FI asap

You fi faster by spending less. Then increasing income and saving it all you don't try to best the market to expedite it. Bc chances are it will take longer.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on March 02, 2018, 06:28:29 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

10 year forecasts are all bogus. As are 1 year forecasts.

Facts not in evidence.  PE/10, or CAPE if you prefer, has good predictive power over five and ten years. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: PaulMaxime on March 03, 2018, 06:47:42 PM
[
OK, I'll concede the point for a second.  If 4% is the best indexing can do over the next decade, then what's the alternative?  If you say "pick individual stocks", you have to understand that you're moving from something with very low risk (buy and hold indexing) to something with very HIGH risk.  So you might make a better return.  Maybe you make 10% instead of 4%.  Whooppee.  You might also LOSE 40% or MORE!!!!!!  That is WAY more likely to kill FI and RE than plodding along at a super-safe 4% returns.

In other words, stop taking the short view and engaging in risky behavior under the mistaken idea that stock picking is the right answer to lower than average expected returns.

Investing in individual stocks is not HIGH RISK compared to indexing. It's only that way if you buy a single stock. A diversified portfolio of 12-18 stocks is enough to diversify non-systematic risk. In my experience, several losers, even if they go to ZERO do not outweigh the big gainers in a buy-to-hold reasonably diversified stock portfolio. You are not being fair comparing investing in one stock to indexing. That's not what sane people do.

https://news.morningstar.com/classroom2/course.asp?docId=145385&page=4

Let's hear from the experts. In their book Investment Analysis and Portfolio Management, Frank Reilly and Keith Brown reported that in one set of studies for randomly selected stocks, "Öabout 90% of the maximum benefit of diversification was derived from portfolios of 12 to 18 stocks." In other words, if you own about 12 to 18 stocks, you have obtained more than 90% of the benefits of diversification, assuming you own an equally weighted portfolio.

Title: Re: Why is active stock picking so taboo on here ?
Post by: Travis on March 03, 2018, 09:12:04 PM
[
OK, I'll concede the point for a second.  If 4% is the best indexing can do over the next decade, then what's the alternative?  If you say "pick individual stocks", you have to understand that you're moving from something with very low risk (buy and hold indexing) to something with very HIGH risk.  So you might make a better return.  Maybe you make 10% instead of 4%.  Whooppee.  You might also LOSE 40% or MORE!!!!!!  That is WAY more likely to kill FI and RE than plodding along at a super-safe 4% returns.

In other words, stop taking the short view and engaging in risky behavior under the mistaken idea that stock picking is the right answer to lower than average expected returns.

Investing in individual stocks is not HIGH RISK compared to indexing. It's only that way if you buy a single stock. A diversified portfolio of 12-18 stocks is enough to diversify non-systematic risk. In my experience, several losers, even if they go to ZERO do not outweigh the big gainers in a buy-to-hold reasonably diversified stock portfolio. You are not being fair comparing investing in one stock to indexing. That's not what sane people do.

https://news.morningstar.com/classroom2/course.asp?docId=145385&page=4

Let's hear from the experts. In their book Investment Analysis and Portfolio Management, Frank Reilly and Keith Brown reported that in one set of studies for randomly selected stocks, "Öabout 90% of the maximum benefit of diversification was derived from portfolios of 12 to 18 stocks." In other words, if you own about 12 to 18 stocks, you have obtained more than 90% of the benefits of diversification, assuming you own an equally weighted portfolio.


So your alternative to index investing is to build your own index?
Title: Re: Why is active stock picking so taboo on here ?
Post by: steveo on March 03, 2018, 09:54:12 PM
[
OK, I'll concede the point for a second.  If 4% is the best indexing can do over the next decade, then what's the alternative?  If you say "pick individual stocks", you have to understand that you're moving from something with very low risk (buy and hold indexing) to something with very HIGH risk.  So you might make a better return.  Maybe you make 10% instead of 4%.  Whooppee.  You might also LOSE 40% or MORE!!!!!!  That is WAY more likely to kill FI and RE than plodding along at a super-safe 4% returns.

In other words, stop taking the short view and engaging in risky behavior under the mistaken idea that stock picking is the right answer to lower than average expected returns.

Investing in individual stocks is not HIGH RISK compared to indexing. It's only that way if you buy a single stock. A diversified portfolio of 12-18 stocks is enough to diversify non-systematic risk. In my experience, several losers, even if they go to ZERO do not outweigh the big gainers in a buy-to-hold reasonably diversified stock portfolio. You are not being fair comparing investing in one stock to indexing. That's not what sane people do.

https://news.morningstar.com/classroom2/course.asp?docId=145385&page=4

Let's hear from the experts. In their book Investment Analysis and Portfolio Management, Frank Reilly and Keith Brown reported that in one set of studies for randomly selected stocks, "Öabout 90% of the maximum benefit of diversification was derived from portfolios of 12 to 18 stocks." In other words, if you own about 12 to 18 stocks, you have obtained more than 90% of the benefits of diversification, assuming you own an equally weighted portfolio.


So your alternative to index investing is to build your own index?

I think the argument is buying your own selected stocks will work out better than the index. Personally I don't believe it and I don't think the risk to reward is worth it and that is excluding the opportunity cost of selecting your stocks.

Lot's of people like to pick their stocks. It's fun and they can talk about it to other people. I think that is the real reason for picking stocks.
Title: Re: Why is active stock picking so taboo on here ?
Post by: PaulMaxime on March 03, 2018, 11:15:24 PM

So your alternative to index investing is to build your own index?

No, it's called building a portfolio.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Mr Mark on March 04, 2018, 01:49:44 AM
WRT OP's question: "Why is active stock picking so taboo on here ?"

I disagree with the prmise of the thread for a start - IMHO it's not 'taboo'  - it's just highly discouraged as a way to invest because it is demonstrably a very sub-optimal way to invest over the long term, based on a LOT of data and hard won personal experiences.

Mustashianism to me is about how you (or almost anyone) can FIRE in a very reliable and predictable way by doing things that are totally within your control: reducing expenditure through sensible frugality, progressively increasing your savings rate, and reaching a point where your stash is ~25x your expenses. Bingo.

Can active stock picking be successful? Of course it can. However, while it's impossible to judge how successful you will be at it forward looking, the cold statistics of those that have done it in the past are very discouraging... Over 30 years, the number of professional active money managers who have achieved it and beaten the market is less than 1%.

In your case, some of the comments you make on this thread suggest to me that you are looking for a 'shortcut' to FIRE (and by the way, this is not an uncommon desire) by boosting your CAGR, perhaps by replicating a successful stock picker and thus "beating the market".

What many here are trying to point out is that:
- your ability to achieve that is statistically almost zero over the long term.
- therefore you are most likely just going to reduce your CAGR and delay FIRE
- that your attempt to do so will also serve as a delusional goal that will distract you from the route of certain (eventual) proven success, ie being frugal and increasing your saving rate.

So does that mean it's '100% VTSAX or nothing' in Mustache-investment-land?

Not at all. There are other recommended investment strategies, prime among them being real estate (SFH rental, multiplex, commercial, fix and flip), and more esoteric index fund formulae (endlessly debated) like how much (if any) International, or what about the value of a Smallcap value tilt, or bond allocation (and if so what % of what type, when). Plus different tax optimisation strategies (Roth or not?), etc etc.

However, all those things are distinctly second order to the prime directive: spend a lot less, and save a lot more. This takes effort. Generally the time and effort required by attempts to beat the market are better directed towards improving upon achieving those goals.

Title: Re: Why is active stock picking so taboo on here ?
Post by: CoffeeR on March 04, 2018, 05:58:08 AM
... but are people who find this stuff very interesting making a big mistake by not picking a few winning stocks with the right focus ?
Picking a 'winning' stock? Yes, that would be a good strategy. The problem is identifying a 'winning' stock. It really is not easy. A one-off example, most people in 2000 would have told you Microsoft (MSFT) was a winning stock. Even people who saw and recognized the then insane tech-valuations, (in general) would have told you MSFT would survive any shake-out. After the tech crash, it did survive, but it languished stock wise for 10+ years. Would you have had that kind of patience even while other stocks started to rally again? Most people tell themselves they would have the patience. Most do not have that patience.

I for one, in the 90's would have told you that Apple (AAPL) was dead. I do computers/tech for a living. I know computers/tech. I thought AAPL was going to die or become irrelevant in the 90's. I was wrong. It is really hard to predict what is going to happen.

You have a longer time horizon than 10 years? Look at the blue-chip stocks of the 50's, 60's, 70's, 80's, the stocks that everyone said were big and "safe" since they have been around for 50+ years and certainly would be here 50+ years from now. Do your research on those so you know how to distinguish the winning stocks from the loosing ones. Start with Kodak.

Right now the high flyers are stocks like Amazon and Netflix and NVidia and they may continue to rally more for a long time, but by all standard metrics (the ones Buffet uses) they are insanely expensive.  Talking about price, Buffet can't find anything to purchase right now, because everything is so expensive.

So, yes, pick the winning stocks if you know what they will be.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Kyle B on March 04, 2018, 09:37:41 AM
... but are people who find this stuff very interesting making a big mistake by not picking a few winning stocks with the right focus ?
I for one, the 90's would have told you that Apple (AAPL) was dead. I do computers/tech for a living. I know computers/tech. I thought AAPL was going to die or become irrelevant in the 90's. I was wrong. It is really hard to predict what is going to happen.
I got rid of my Macs just before Jobs returned to Apple. There was zero sense Apple would recover, especially in the face of Windows 95.

Even when Jobs came back, I don't really think things turned around hugely for AAPL until the iPod (ie, not a revolutionary product, and not the computer one might have predicted would be Apple's savior.) The iPod's value-add was that it was a device that finally made it easy to listen to stolen songs. It saved AAPL by wrecking the music business. (If you predicted that of AAPL in 1995, you indeed should be picking your own stocks.) :-)

(And the iPhone was certainly not expected, and even it was not obviously a success at launch.)
Title: Re: Why is active stock picking so taboo on here ?
Post by: Money Maker Mike on March 05, 2018, 08:57:27 PM
After reading this thread, I finally decided to sell my 9 AMZN stocks that I bought before becoming a born-again indexer. 110% in approximately 2 years is good enough I suppose, but with that kind of gain it is so tempting to believe I could be in that extreme minority. Time to put my money where my mouth is... Looking back at this post in a few years should be interesting.
Title: Re: Why is active stock picking so taboo on here ?
Post by: enigmawrap on March 05, 2018, 09:44:38 PM
Well, this is my very first post on the Mustache site, so here goes:

As one who has suffered the trials and tribulations of stock market "investing," Warren Buffet's idea of the "do nothing" investor to invest in index funds is probably the correct way for most people to go.  And, that idea doesn't come from Buffet, it comes from his teacher, Benjamin Graham.  After reading Graham's book, Security Analysis, for the 5th time, one realizes that Graham states several times in the book that (paraphrased) "...it would be extremely hard for an individual to handle the ups/downs of a market...and, most would buy/sell at the wrong time..."  If one does not really understand what one is investing in - whether that is Apple stock, a duplex rental property, a small business, etc. than one would be more likely to panic at the wrong time (whether a moment of despair or ecstasy).  And, reading through Graham's book, one finds Buffet's present philosophy w/regards to honest management, the numbers that reveal a great business, etc.  As far as the "time" needed to investigate an investment, what does Buffet say?  "Become a voracious reader..."  If one does not have the time for that, than an individual stock purchase is off-limits.  So, (OH NO!) why do I pick individual stocks?  I'm no expert, I'm not a genius, and have no "system."  Well, because I do like to read those reports...I do like to review the financials (going back 10 years), and so on...now, did I know how to read that stuff 10-15 years ago?  Hell no - which is the reason for my first sentence.  So, read, read, read, plus a couple of courses in accounting, etc.  And, here we are.  Finally, I would never tell anyone to buy this or that stock....if someone asked, I would just say "I like them because...." and leave it at that.  And, it seems 90%+ on this forum already have the very good habit of setting aside funds for an index fund, and that is better than (sadly) 70%+ of the American population, which is probably some of the best advice.  And, helps everyone to keep Buffet's rule #1.  This a great forum - and, I'm glad I found the mustache site. :)
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on March 06, 2018, 06:10:02 AM
Well, this is my very first post on the Mustache site, so here goes:

As one who has suffered the trials and tribulations of stock market "investing," Warren Buffet's idea of the "do nothing" investor to invest in index funds is probably the correct way for most people to go.  And, that idea doesn't come from Buffet, it comes from his teacher, Benjamin Graham.  After reading Graham's book, Security Analysis, for the 5th time, one realizes that Graham states several times in the book that (paraphrased) "...it would be extremely hard for an individual to handle the ups/downs of a market...and, most would buy/sell at the wrong time..."  If one does not really understand what one is investing in - whether that is Apple stock, a duplex rental property, a small business, etc. than one would be more likely to panic at the wrong time (whether a moment of despair or ecstasy).  And, reading through Graham's book, one finds Buffet's present philosophy w/regards to honest management, the numbers that reveal a great business, etc.  As far as the "time" needed to investigate an investment, what does Buffet say?  "Become a voracious reader..."  If one does not have the time for that, than an individual stock purchase is off-limits.  So, (OH NO!) why do I pick individual stocks?  I'm no expert, I'm not a genius, and have no "system."  Well, because I do like to read those reports...I do like to review the financials (going back 10 years), and so on...now, did I know how to read that stuff 10-15 years ago?  Hell no - which is the reason for my first sentence.  So, read, read, read, plus a couple of courses in accounting, etc.  And, here we are.  Finally, I would never tell anyone to buy this or that stock....if someone asked, I would just say "I like them because...." and leave it at that.  And, it seems 90%+ on this forum already have the very good habit of setting aside funds for an index fund, and that is better than (sadly) 70%+ of the American population, which is probably some of the best advice.  And, helps everyone to keep Buffet's rule #1.  This a great forum - and, I'm glad I found the mustache site. :)

This post gave no actual data or actionable plan to follow.  And even though I don't if I'd believe what you said if you told us you didn't even provide any data point as to the return you've had over your extremely small sample size of 5-10 years doing this compared to the actual market. You have also been doing this in the hottest bull market in history. Your reading could have produced above avg returns. But it's a small window. Just like I can sit at a black jack table for 5 hours and come out ahead. But over a long time stastically say I'll lose. And over along time stastically say you'll break even with the market or lose
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 06, 2018, 11:05:11 AM
The level of detail here from people is impressive I thank you all for advising me in the best way possible

I think indexing I will go for in 12 months time and see where it takes me... hopefully I will get lucky and the market will take a dive just before I start to Go aggressive in the index!
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on March 06, 2018, 02:31:40 PM
Interesting responses,

What are people thoughts to the next decade forecasting returns of 4% from the sensible folks in investing ? I.e Bogle? Is it not worth trying to best these lower the average returns? Or are these 10 year forecasts all bogus ?

Alot of people state short term is impossible to predict but 10 years are more predictable?

This is where I knew what I know now 10 years ago!

You have short term mentality.  Don't worry, lots of people do.  Re: 4% returns for a decade?  So what?  How about the next 20 or 30 years?  Still 4%? 

OK, I'll concede the point for a second.  If 4% is the best indexing can do over the next decade, then what's the alternative?  If you say "pick individual stocks", you have to understand that you're moving from something with very low risk (buy and hold indexing) to something with very HIGH risk.  So you might make a better return.  Maybe you make 10% instead of 4%.  Whooppee.  You might also LOSE 40% or MORE!!!!!!  That is WAY more likely to kill FI and RE than plodding along at a super-safe 4% returns.

In other words, stop taking the short view and engaging in risky behavior under the mistaken idea that stock picking is the right answer to lower than average expected returns.
This was exactly my point to anyone with this concern.  If the market returns drop, all other investments will still maintain parity and drop accordingly, as that's how financial instruments works.  If I could get a bank CD to return 20% it would be doing that already, but it can't do that as it is dependent on the interest rates the Fed sets, which impact the stock market and on and on.  The stock market, if it drops to 4%, will be doing so based on economic forces that impact EVERY alternative not simply the market.  And since all those individual stocks are making up the stock market average (after all I believe we all understand how math works) that means individual stock returns also drop, otherwise the market average would not drop.  It's a mathematical impossibility for anything else to happen.

So my viewpoint is always to assess what has the best chance of the best return for the least risk and I'm not seeing anything that will overtake the stock market likely to happen in my lifetime.
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on March 06, 2018, 02:38:49 PM

So your alternative to index investing is to build your own index?

No, it's called building a portfolio.
No, it's really not.  You are just building a tiny "average".  As I stated in one of my posts earlier, a well run investment club does exactly this, buys 12-18 stocks and hopes to best the market.  And it can happen and for some it does, but it is a ton of work compared to indexing which requires 0 work, so one might argue it is infinitely more work.  Having played that game to ten years, I'd say that it was not worth the effort as we beat the market by less than 1/2% over that time.  And I promise you I thought I was at least as good at doing this as you think you are.
Title: Re: Why is active stock picking so taboo on here ?
Post by: kayvent on March 06, 2018, 03:22:13 PM
Drive by post by someone who only read the first few posts and the last few:

It should always be noted that Warren Buffet is not a stock picker. Berkshire Hathaway (BH) buys companies outright or large sections of companies or makes large, direct investments. Before BH makes a decision, the key BH players will fly to the head office of the destination company, meet their leadership team, etc... This is after BH has already done extensive research. They are active with the boards and leaderships of companies they are involved with. I'm also saying BH instead of Warren Buffet because they are often conflated. There are many genius investors in BH and the apparatus has teams of support and leadership.

I'm saying this all because you & I are not BH. Even when we are active stock pickers, we are leeches. We're not on the board of directors for the companies we invest in, we don't have enough shares to alter share holder resolutions, and we're not investors that brought new capital into the operation.

What has worked for BH and a small number of other organizations, often can't scale to the individual investor. Patience, looking for a good value, not buying into crazes, and other advice do scale to us.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Kyle B on March 06, 2018, 04:06:38 PM
Drive by post by someone who only read the first few posts and the last few:

It should always be noted that Warren Buffet is not a stock picker. Berkshire Hathaway (BH) buys companies outright or large sections of companies or makes large, direct investments. Before BH makes a decision, the key BH players will fly to the head office of the destination company, meet their leadership team, etc... This is after BH has already done extensive research. They are active with the boards and leaderships of companies they are involved with. I'm also saying BH instead of Warren Buffet because they are often conflated. There are many genius investors in BH and the apparatus has teams of support and leadership.

I'm saying this all because you & I are not BH. Even when we are active stock pickers, we are leeches. We're not on the board of directors for the companies we invest in, we don't have enough shares to alter share holder resolutions, and we're not investors that brought new capital into the operation.

What has worked for BH and a small number of other organizations, often can't scale to the individual investor. Patience, looking for a good value, not buying into crazes, and other advice do scale to us.
BH buys tons of securities, as does Munger (DJCO).
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 07, 2018, 09:24:42 AM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can? 
Title: Re: Why is active stock picking so taboo on here ?
Post by: Kyle B on March 07, 2018, 10:08:30 AM
Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.
Actually, the experts do far worse than indexing. That was the point of Warren Buffett's bet:

https://www.usatoday.com/story/money/markets/2018/03/07/warren-buffett-made-10-year-bet-his-market-strategy-heres-how-he-won/402823002/ (https://www.usatoday.com/story/money/markets/2018/03/07/warren-buffett-made-10-year-bet-his-market-strategy-heres-how-he-won/402823002/)
Title: Re: Why is active stock picking so taboo on here ?
Post by: Dicey on March 07, 2018, 11:00:35 AM
The level of detail here from people is impressive I thank you all for advising me in the best way possible

I think indexing I will go for in 12 months time and see where it takes me... hopefully I will get lucky and the market will take a dive just before I start to Go aggressive in the index!

Where is that cartoon about someone on the internet being wrong? <---- Rhetorical question, no action required.

There has been lots of good input on this thread. Near the bottom of page one, it seemed the lights had turned on for the OP, but the bolded above tells the truth. They're gonna do what they wanna do no matter what. Oh, well. You can't save 'em all.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 07, 2018, 11:44:44 AM
Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.
Actually, the experts do far worse than indexing. That was the point of Warren Buffett's bet:

https://www.usatoday.com/story/money/markets/2018/03/07/warren-buffett-made-10-year-bet-his-market-strategy-heres-how-he-won/402823002/ (https://www.usatoday.com/story/money/markets/2018/03/07/warren-buffett-made-10-year-bet-his-market-strategy-heres-how-he-won/402823002/)

HOLY SHIT, it's even worse than I thought.  Hahahahahahahah man the active funds got SPANKED!!  Here's the relevant paragraph:

"The final results of the bet, according to Buffett, provided a resounding victory for low-cost index funds over high-cost hedge funds. The returns over the 10-year period for the five hedge funds of funds ranged from a mere 0.3 percent to 6.5% annually.

A representative S&P 500 index fund generated an 8.5% annual return."


0.3%!!!!!  All that work and some of the very best money managers in the world ended up with a 10 year return of 0.3%!!!!  During one of the greatest bull markets in history!!!!  It would be tragic, if it weren't so damn funny.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 08, 2018, 03:33:49 AM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on March 08, 2018, 04:50:50 AM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on March 08, 2018, 06:13:45 AM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Yes, I would agree.  You've been told many, many times how your strategy is difficult to pull off and why Buffett's statements still do not apply to individuals yet you keep finding ways to insist you are different, the special snowflake and we're not getting it.  We are.  You've made up your mind that you think this is doable.  So go do it, and as everyone has made clear when the likely result is less than you hoped for, you will not get any sympathy coming back here to admit that.  Several of us have explained how we've walked the road you want to walk and given you our results, which align with the "poorer returns than we'd hoped" and that the school of hard knocks showed us that indexing is more than good enough. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 08, 2018, 08:33:45 AM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Actually that's not a true statement.  There's plenty of fund managers that take a more buy and hold methodology and..... they perform almost as well as indexing.  Notice I said "almost".  It's a lot of work and you end up with worse results. 

Don't waste your time/effort trying to beat the market, it's MUCH more powerful to spend your time/effort reducing your expenses.  You never did answer before - what is your current savings rate? 
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on March 08, 2018, 11:16:05 AM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...


I'm not familiar with that quote, but Buffett has also said he's met maybe 10 people in his lifetime he believed could beat the market.  I imagine he's met a lot of people over the years. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 08, 2018, 12:09:57 PM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Yes, I would agree.  You've been told many, many times how your strategy is difficult to pull off and why Buffett's statements still do not apply to individuals yet you keep finding ways to insist you are different, the special snowflake and we're not getting it.  We are.  You've made up your mind that you think this is doable.  So go do it, and as everyone has made clear when the likely result is less than you hoped for, you will not get any sympathy coming back here to admit that.  Several of us have explained how we've walked the road you want to walk and given you our results, which align with the "poorer returns than we'd hoped" and that the school of hard knocks showed us that indexing is more than good enough.

not sure if you have read my other comments but i have fully decided indexes are going to be my strategy.... if i spend so much time to lose money it will really drive me crazy... i dont think i can afford to make that mistake these days

i was merely pointing out that most fund managers trade alot
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on March 08, 2018, 02:31:15 PM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Yes, I would agree.  You've been told many, many times how your strategy is difficult to pull off and why Buffett's statements still do not apply to individuals yet you keep finding ways to insist you are different, the special snowflake and we're not getting it.  We are.  You've made up your mind that you think this is doable.  So go do it, and as everyone has made clear when the likely result is less than you hoped for, you will not get any sympathy coming back here to admit that.  Several of us have explained how we've walked the road you want to walk and given you our results, which align with the "poorer returns than we'd hoped" and that the school of hard knocks showed us that indexing is more than good enough.

not sure if you have read my other comments but i have fully decided indexes are going to be my strategy.... if i spend so much time to lose money it will really drive me crazy... i dont think i can afford to make that mistake these days

i was merely pointing out that most fund managers trade alot
I did see your other comments, but as others pointed out I think you fully decided to do it for 12 months.  Not sure that is "fully decided".  Either way, you'll do what you'll do and I wish you well.
Title: Re: Why is active stock picking so taboo on here ?
Post by: moof on March 08, 2018, 05:10:43 PM
A few random thoughts...

#1 One should start with how much they have in their portfolio to play with.  Active stock picking with a few thousand will create huge losses in trading fees, making it possible to net worse returns even if you beat the market.

#2 As a single investor you have access to much less info, and lower quality info than some Wall Street trader who can afford to have an analyst investigate companies before buying.  You get press releases to read.  So you are going into a gun fight with a knife.

#3 Your time is valuable.  If you want to spend hours each week investigating each trade, that time is highly valuable.  Factor that lost value into your returns.

#4 If you let 100 people make random stock picks for a year only the winners will be shouting from the roof tops.  People will scream about how they beat the market for a year, and make up excuses for the years they lost their shirt (or your shirt).  You can easily be fooled into thinking that most people that go to Vegas win.

#5 You are emotional.  Do you trust yourself to not get excited by hype?  Do you trust your self not to panic sell?  Index funds are more stable than individual stocks, making it easier to trust your self to follow a nice and simple asset allocation.

If you think you can go out maneuver the index, go for it.  Professional traders with much better resources than you mostly fail to beat the market over any decent stretch.  In the end it is YOUR money, I don't care what you do with it.  Go nuts.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 09, 2018, 05:31:20 AM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

actually that is warren buffets assumption... and he claims you dont have to be a genius to do it...

also, the fund managers are not investing like buffet in any way shape or form... they trade like crazy in attempts to beat the market on a daily basis.... this is NOT the same philosophy as i am speaking about

Do what ever you want just know your likely going to lose to the index.
Yes, I would agree.  You've been told many, many times how your strategy is difficult to pull off and why Buffett's statements still do not apply to individuals yet you keep finding ways to insist you are different, the special snowflake and we're not getting it.  We are.  You've made up your mind that you think this is doable.  So go do it, and as everyone has made clear when the likely result is less than you hoped for, you will not get any sympathy coming back here to admit that.  Several of us have explained how we've walked the road you want to walk and given you our results, which align with the "poorer returns than we'd hoped" and that the school of hard knocks showed us that indexing is more than good enough.

not sure if you have read my other comments but i have fully decided indexes are going to be my strategy.... if i spend so much time to lose money it will really drive me crazy... i dont think i can afford to make that mistake these days

i was merely pointing out that most fund managers trade alot
I did see your other comments, but as others pointed out I think you fully decided to do it for 12 months.  Not sure that is "fully decided".  Either way, you'll do what you'll do and I wish you well.

in 12 months time i will be aggressively investing, i havent looked back at what i wrote but the time frame i have for aggressively going in 100% stocks is 10-12 years - my question was all about is it worth giving the buffet style approach worth it? it seems to me it just isnt and it seems more like a gamble then skill - so indexing it will be
Title: Re: Why is active stock picking so taboo on here ?
Post by: CorpRaider on March 09, 2018, 06:22:18 AM
Whatever you are most likely to hold through the next crash is probably the best route.  If you think "I own a slice of American/World business, it will be ok" when it is down 40% then good for you.

If you are going to freak out because of "the market" and a bunch of macro stuff because you just own "stocks" and are more likely to hold on to BRK because you know Buffett is the GOAT and just read that he cut a sweet deal with GS, or even a dividend stock portfolio because the checks keeps hitting your account, then those choices may be optimal.

It seems like indexing could give you fewer opportunities to make bad choices, as you are just long stocks or not and aren't tempted to to chase performance in funds or stocks.

Title: Re: Why is active stock picking so taboo on here ?
Post by: JetBlast on March 09, 2018, 07:44:56 AM
I think the objections to stock picking have been pretty fully explained at this point. That said, I do think it is possible to consistently beat the market if the following all line up:

1) Raw intelligence. You either have it or you donít. If you donít have the ability to learn complex accounting and handle the information available about a company youíre just throwing darts blindfolded. In this self-sorted community the majority likely have enough innate intelligence.

2) Education. You have to do the work to learn about the stock market and financial accounting. Then you need to learn about the individual industries and businesses within them. Not impossible but takes a huge amount of time.

3) Temperament. I think the FI/ER community likely has a disproportionate number of people with the right temperament since we tend to play the long game, but itís still a small number of us. Most of the population doesnít have it and Iíd think a majority here donít either.

4) Interest. Without this 1 & 3 donít matter and you probably wonít work on 2. Good think is you probably donít want to try and just index. Winning!

5) The Game. You need to pick the right game. Unless youíre running an investment firm you canít do what Buffett does. Buying an insurance company to invest its float is out of reach. Getting a meeting with management before you make an investment is unlikely. You need to operate where most investment managers canít. Early in Buffettís career his strategy was what Charlie Munger calls ďcigar butt investing.Ē  Finding dumpy little companies that you can get the last couple puffs from. Thatís a game you might stand a better chance in since most fund managers are limited to companies with reasonably large market caps. Itís where Iíve personally had my best luck and where Iíd focus my efforts if I got back into active investing.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 09, 2018, 08:28:22 AM
I think the objections to stock picking have been pretty fully explained at this point. That said, I do think it is possible to consistently beat the market if the following all line up:

1) Raw intelligence. You either have it or you donít. If you donít have the ability to learn complex accounting and handle the information available about a company youíre just throwing darts blindfolded. In this self-sorted community the majority likely have enough innate intelligence.

2) Education. You have to do the work to learn about the stock market and financial accounting. Then you need to learn about the individual industries and businesses within them. Not impossible but takes a huge amount of time.

3) Temperament. I think the FI/ER community likely has a disproportionate number of people with the right temperament since we tend to play the long game, but itís still a small number of us. Most of the population doesnít have it and Iíd think a majority here donít either.

4) Interest. Without this 1 & 3 donít matter and you probably wonít work on 2. Good think is you probably donít want to try and just index. Winning!

5) The Game. You need to pick the right game. Unless youíre running an investment firm you canít do what Buffett does. Buying an insurance company to invest its float is out of reach. Getting a meeting with management before you make an investment is unlikely. You need to operate where most investment managers canít. Early in Buffettís career his strategy was what Charlie Munger calls ďcigar butt investing.Ē  Finding dumpy little companies that you can get the last couple puffs from. Thatís a game you might stand a better chance in since most fund managers are limited to companies with reasonably large market caps. Itís where Iíve personally had my best luck and where Iíd focus my efforts if I got back into active investing.

Maybe over the short term, but not over the long term.  If it were true, we'd see it reflected in the professional world where people do have all 4 of these requirements.  And some have them in spades.  No one beats the market over the long term.  Unless you're buying out companies and actively taking control to turn them around (like Buffet often does). 

BUT, that's all beside the point for me.  The main point for me is this:  Doing all 4 things above is WORK.  In fact it's harder work than what I do right now for a living full time.  The main point of MMM is to FIRE.  When I FIRE, I want to STOP WORKING, not take on another job as a financial analyst. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: JetBlast on March 09, 2018, 10:02:42 AM
I think the objections to stock picking have been pretty fully explained at this point. That said, I do think it is possible to consistently beat the market if the following all line up:

1) Raw intelligence. You either have it or you donít. If you donít have the ability to learn complex accounting and handle the information available about a company youíre just throwing darts blindfolded. In this self-sorted community the majority likely have enough innate intelligence.

2) Education. You have to do the work to learn about the stock market and financial accounting. Then you need to learn about the individual industries and businesses within them. Not impossible but takes a huge amount of time.

3) Temperament. I think the FI/ER community likely has a disproportionate number of people with the right temperament since we tend to play the long game, but itís still a small number of us. Most of the population doesnít have it and Iíd think a majority here donít either.

4) Interest. Without this 1 & 3 donít matter and you probably wonít work on 2. Good think is you probably donít want to try and just index. Winning!

5) The Game. You need to pick the right game. Unless youíre running an investment firm you canít do what Buffett does. Buying an insurance company to invest its float is out of reach. Getting a meeting with management before you make an investment is unlikely. You need to operate where most investment managers canít. Early in Buffettís career his strategy was what Charlie Munger calls ďcigar butt investing.Ē  Finding dumpy little companies that you can get the last couple puffs from. Thatís a game you might stand a better chance in since most fund managers are limited to companies with reasonably large market caps. Itís where Iíve personally had my best luck and where Iíd focus my efforts if I got back into active investing.

Maybe over the short term, but not over the long term.  If it were true, we'd see it reflected in the professional world where people do have all 4 of these requirements.  And some have them in spades.  No one beats the market over the long term.  Unless you're buying out companies and actively taking control to turn them around (like Buffet often does). 

BUT, that's all beside the point for me.  The main point for me is this:  Doing all 4 things above is WORK.  In fact it's harder work than what I do right now for a living full time.  The main point of MMM is to FIRE.  When I FIRE, I want to STOP WORKING, not take on another job as a financial analyst.

I believe there are two reasons you donít see it reflected in the professional world very often. First, most professionals donít have the temperament.  Itís very rare to find a fund manager thatís ok with not making a trade for several months or more. Second, most are limited in what they can do. Some of the games are off limits to them. Either their fundís rules have minimum market caps for companies that can be invested it which limits options, or they have investors breathing down their necks for outperformance quarterly, monthly, or even weekly.

I agree with you on the point about it being work. The thing is, for a few people it doesnít feel like work. Itís a passion. They love the process of learning about industries and companies. They love figuring out what theyíd be willing to pay for a portion of current assets and future earnings. Thatís what I meant by having the interest. Thereís a reason Buffett says he ďtap dances to work.Ē
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 09, 2018, 10:15:11 AM
I think the objections to stock picking have been pretty fully explained at this point. That said, I do think it is possible to consistently beat the market if the following all line up:

1) Raw intelligence. You either have it or you donít. If you donít have the ability to learn complex accounting and handle the information available about a company youíre just throwing darts blindfolded. In this self-sorted community the majority likely have enough innate intelligence.

2) Education. You have to do the work to learn about the stock market and financial accounting. Then you need to learn about the individual industries and businesses within them. Not impossible but takes a huge amount of time.

3) Temperament. I think the FI/ER community likely has a disproportionate number of people with the right temperament since we tend to play the long game, but itís still a small number of us. Most of the population doesnít have it and Iíd think a majority here donít either.

4) Interest. Without this 1 & 3 donít matter and you probably wonít work on 2. Good think is you probably donít want to try and just index. Winning!

5) The Game. You need to pick the right game. Unless youíre running an investment firm you canít do what Buffett does. Buying an insurance company to invest its float is out of reach. Getting a meeting with management before you make an investment is unlikely. You need to operate where most investment managers canít. Early in Buffettís career his strategy was what Charlie Munger calls ďcigar butt investing.Ē  Finding dumpy little companies that you can get the last couple puffs from. Thatís a game you might stand a better chance in since most fund managers are limited to companies with reasonably large market caps. Itís where Iíve personally had my best luck and where Iíd focus my efforts if I got back into active investing.

Maybe over the short term, but not over the long term.  If it were true, we'd see it reflected in the professional world where people do have all 4 of these requirements.  And some have them in spades.  No one beats the market over the long term.  Unless you're buying out companies and actively taking control to turn them around (like Buffet often does). 

BUT, that's all beside the point for me.  The main point for me is this:  Doing all 4 things above is WORK.  In fact it's harder work than what I do right now for a living full time.  The main point of MMM is to FIRE.  When I FIRE, I want to STOP WORKING, not take on another job as a financial analyst.

I believe there are two reasons you donít see it reflected in the professional world very often. First, most professionals donít have the temperament.  Itís very rare to find a fund manager thatís ok with not making a trade for several months or more. Second, most are limited in what they can do. Some of the games are off limits to them. Either their fundís rules have minimum market caps for companies that can be invested it which limits options, or they have investors breathing down their necks for outperformance quarterly, monthly, or even weekly.

I agree with you on the point about it being work. The thing is, for a few people it doesnít feel like work. Itís a passion. They love the process of learning about industries and companies. They love figuring out what theyíd be willing to pay for a portion of current assets and future earnings. Thatís what I meant by having the interest. Thereís a reason Buffett says he ďtap dances to work.Ē

That's a pretty big claim, you should be able to show lots of examples of the market being beaten if it were true.  If millions and millions of people invest in the market, then there should be at least several thousand people beating the market just based on statistical distribution.  So lets see it.  And specifically over a 30 year time frame.  5 or 10 years is way to short a time frame to assess the validity of any particular approach.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on March 09, 2018, 10:28:19 AM

That's a pretty big claim, you should be able to show lots of examples of the market being beaten if it were true.  If millions and millions of people invest in the market, then there should be at least several thousand people beating the market just based on statistical distribution.  So lets see it.  And specifically over a 30 year time frame.  5 or 10 years is way to short a time frame to assess the validity of any particular approach.

There may be, we just don't know who they are.   And even if we did, how do we verify it?  Michael Burry (from the book the Big Short) started posting his picks on the Internet.   He was so good that big money investors started seeking him out.   Then as a hedge fund manager he annihilated the market.  But if he hadn't been posting his picks we never would have heard of him. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: koshtra on March 09, 2018, 10:43:32 AM
But really, the reason I'd discourage stock-picking as a side gig is that it's not productive meaningful work: it doesn't create value. You're just swapping tokens in a zero-sum game. If you have all those qualities in JetBlast's wonderful list you can find ways to make money that also improve the world and help people -- that will lend more meaning to your life and make everyone happier. Which is what we actually want financial freedom for in the first place, isn't it? To do cool stuff. Diddling data all day to win a poker game is kind of fun for a while, but it's not much of a way to prepare for a life of creative, meaningful, post-fire work.
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on March 09, 2018, 10:47:29 AM
I think it is important to note one key difference that I have not seen anyone call.

Buffet and company do not "invest" in any company they meet with management on in the same sense we would, meaning just buying their stock.  They are investing by taking some ownership at that point.  If they were to meet with management and then just go buy stock that would be considered insider trading which is illegal and would be a big problem for them.  So I think it is helpful to realize that that level of what Buffet does is not really relevant to the apples to apple comparison because he does not have an advantage that others would not.  That's precisely why insider trading is illegal, because then you would have that advantage.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Tyson on March 09, 2018, 11:02:56 AM

That's a pretty big claim, you should be able to show lots of examples of the market being beaten if it were true.  If millions and millions of people invest in the market, then there should be at least several thousand people beating the market just based on statistical distribution.  So lets see it.  And specifically over a 30 year time frame.  5 or 10 years is way to short a time frame to assess the validity of any particular approach.

There may be, we just don't know who they are.   And even if we did, how do we verify it?  Michael Burry (from the book the Big Short) started posting his picks on the Internet.   He was so good that big money investors started seeking him out.   Then as a hedge fund manager he annihilated the market.  But if he hadn't been posting his picks we never would have heard of him.

It's possible to beat the market in the short term by taking larger risks.  That's true and it will always be true.  The problem is that with bigger risk, you eventually end up with bigger losses.  Which is why you need a 30 year window - anything shorter and you don't get a full measure of the approach advocated. 

If you've watched financial results over time you'll see that every decade or so there's a new "Michael Burry" that crushes it due to exploiting some area no one recognized before.  After a few years these people all tend to fade to obscurity.  Why?  Because they generally don't keep beating the market in any significant way over the long term. 

In my industry (tech) I see this all the time - there's the star startup company that's exploiting a niche (usually a new technology based niche), they're kicking ass all over the place.  They do so well they think "man, we are just better at business than all these other suckers".  Check on them 5 or 10 years later.  Often times they are no longer around.  If they are around, they aren't growing like gangbusters anymore, they exploited their niche while it lasted and now they're back to pedestrian growth and earnings. 

So I am NOT saying it's impossible to beat the market over the short term.  I AM saying that if you want to sway my opinion on this topic, you'll need to show evidence that your way 1) beats the market for a 30 year time period 2) is not more risky than indexing

If you can meet those 2 requirements, then I'll cede the point.
Title: Re: Why is active stock picking so taboo on here ?
Post by: enigmawrap on March 29, 2018, 06:15:59 PM
Border42 - Me, give an "actionable plan" to follow? LOL! 1) Maybe when I become financially independent (e.g., income is above and beyond daily expenses), and 2) even then, I would not go around telling people "do this and you'll become rich..." 

However, to put the "good, bad, and ugly..." on the table, I will say the following:  1) Yup, I've lost lots of money in real estate, mostly to making bad decisions about people and not about property, 2) Yup, I've lost lots of money in stocks, mostly to making bad (e.g., emotional) decisions about what/when/how to buy..., and 3) after all those mistakes, do I still own/looking to buy more real estate? - Yup....do i still own/buying stocks? - Yup.  If you are looking for some "tip," well, I really don't do that.  If you want to measure investment "return" by asking about something I bought 5 years ago, and giving you the value for today, well, I won't do that either.  However, I will give one example:  I own shares/am accumulating shares in a rather boring company - Hormel Foods.  why?  They have little debt, they are very conservatively managed, and even in this so-called health food craze, they are still selling products that people need to replenish every week (and during a hurricane, their products are off-the-shelf...learned from personal experience in Florida).  As far as numbers, the "internal rate of return" of my purchases over the last 3 years has been approx. 4.5% (avg).  This is NOT the dividend yield, it is simply Earnings Per share/purchase price.  And, as long as the company keeps doing what they've been doing, I expect that return to increase over time, as in - for the shares I paid $30 for last year, the IRR in 10 years will have increased to 9 or 10% (not too shabby).  And, with that internal cash generation, and so many other variables, it would be expected that the dividends will increase proportionately.  Of course, I am not telling you or anyone else to buy stock in this company - it's just what I have done.
Title: Re: Why is active stock picking so taboo on here ?
Post by: powskier on March 29, 2018, 10:59:45 PM
Picking 6 or 7 stocks is so old school. You should really just create a High Frequency trading algorithm instead.

Title: Re: Why is active stock picking so taboo on here ?
Post by: talltexan on March 30, 2018, 08:37:41 AM
I don't understand bragging about an internal rate of return of 4.5% when--three years ago--the SP500 was 2050, and today it's 2650 (which is a 30% increase before considering dividends).
Title: Re: Why is active stock picking so taboo on here ?
Post by: KTG on March 30, 2018, 09:18:21 AM
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.
Title: Re: Why is active stock picking so taboo on here ?
Post by: appleshampooid on March 30, 2018, 09:34:36 AM
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.
I think the standard answer is more diversification, and more opportunity for growth in the small caps that the 500 excludes. Same answer when you ask why most Bogleheads/MMM/indexers hold international funds when Jack Bogle himself and Buffet have both said they would stay away. Potential for higher returns, more diversity, etc.

It is hard for me to argue with straight up S&P500 for your equity exposure. Couldn't be simpler. But I have recently added some international exposure after hemming and hawing for a while, even though they have lagged the US for as far back as I could backtest. Why? FOMO. In 30 years I can look back and see if I would have actually missed out on anything, lol.
Title: Re: Why is active stock picking so taboo on here ?
Post by: ChpBstrd on March 30, 2018, 02:50:08 PM
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.

I wouldn't worry about it. The benefits of diversification start to level off after you have about 40 stocks in a portfolio. Going from 500 to, say, 10,000 stocks doesn't reduce asystemic risk as much as going from 10 to 20 does. Just keep on avoiding taxes and fees.

https://www.investopedia.com/managing-wealth/modern-portfolio-theory-why-its-still-hip/
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on March 30, 2018, 10:46:23 PM
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.

Because they are both cap weighted, so Total Market and S&P 500 are basically the same thing.  Both are so heavily loaded towards the biggest cap stocks that the rest of the index doesn't matter much, if it all.   

I can't speak for Buffett, but I think he is suggesting that simplicity is good.  No one ever made a mistake by simply investing in a nice, low-cost S&P 500 index fund.  In fact, if you simply did that, you beat the pants off of 95% of managed funds, not to mention all most all hedge fund managers, and virtually all (or maybe all) managers of big endowments--like Harvard, whose endowment has pitfiully lagged the market.  This is Harvard.  Very smart people.  And they flat suck at investing.    Investing in that low-cost S&P 500 index fund puts you in the upper echelon of investors in terms of returns.  You are a rock star.  You are LeBron James of investors.  Just by doing the basics.  That is some serious power.  You can drill down on portfolio theory as far as you like, but that low-cost S&P 500 index fund gets you on the A-list with almost no effort. 

So if you are giving blanket advice that can be reduced to a sound bite, suggesting a low-cost S&P 500 index fund is about as good advice as there is. 

Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on March 31, 2018, 02:35:25 PM
Warren Buffet's plan for his inheritance is 90% S&P 500 fund (Vanguard) and 10% U.S. Treasuries.

I have heard him say many times he recommends a low cost S&P 500 Fund, so why are so many Mustachians using the Total Market instead? I know 80% of Vanguard's Total Market fund is made up of 500 stocks, so what is the draw to this over the S&P 500?

For the record, I started out with VOO, then moved heavily into VTI, which has a 3-1 ratio over VOO in my portfolio now. They feel like they are one in the same based on movement, dividends, etc. I know VTI is more diverse. So why is Buffet locked in on the 500 and the majority of us are not? At least, thats what I see to pick up on here.

And since I don't want to pay taxes on selling VOO, I have just left it there. I would prefer to be all in on one or the other.

Because they are both cap weighted, so Total Market and S&P 500 are basically the same thing.  Both are so heavily loaded towards the biggest cap stocks that the rest of the index doesn't matter much, if it all.   

I can't speak for Buffett, but I think he is suggesting that simplicity is good.  No one ever made a mistake by simply investing in a nice, low-cost S&P 500 index fund.  In fact, if you simply did that, you beat the pants off of 95% of managed funds, not to mention all most all hedge fund managers, and virtually all (or maybe all) managers of big endowments--like Harvard, whose endowment has pitfiully lagged the market.  This is Harvard.  Very smart people.  And they flat suck at investing.    Investing in that low-cost S&P 500 index fund puts you in the upper echelon of investors in terms of returns.  You are a rock star.  You are LeBron James of investors.  Just by doing the basics.  That is some serious power.  You can drill down on portfolio theory as far as you like, but that low-cost S&P 500 index fund gets you on the A-list with almost no effort. 

So if you are giving blanket advice that can be reduced to a sound bite, suggesting a low-cost S&P 500 index fund is about as good advice as there is.

Looking into this alot since I started this very controversial thread a global small cap index is what I have decided I will go with

Bogle 4% return's over the next decade is hard to argue against and I like that small caps seem to fly under the radar

I'll jump on the s&p when it lowers i think
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on March 31, 2018, 07:03:51 PM

I'll jump on the s&p when it lowers i think

What if it doesn't lower? 
Title: Re: Why is active stock picking so taboo on here ?
Post by: MrUpwardlyMobile on March 31, 2018, 07:05:54 PM

I'll jump on the s&p when it lowers i think

What if it doesn't lower?

Then he wonít lol
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on March 31, 2018, 07:41:23 PM
Active stock picking versus indexing are two completely different things and shouldn't be compared.

The first is taking a gamble on an individual company.

Indexing, on the other hand, is really making an investment on two assumptions:

1) human population will continue to grow (which increases productivity and profits).
2) technology will continue to improve (which also increases productivity and profits).

As long as one of the above continues, company profits (and hence index fund value) will continue to grow.  With stock picking, you have to pick an individual winner, which is not the same thing at all.

Title: Re: Why is active stock picking so taboo on here ?
Post by: SwitchActiveDWG on March 31, 2018, 09:38:01 PM
Iím really surprised threads like this exists on these forums...

Math is here to help. Passive index funds should be your only equities. This is your real money.

Individuals stocks, market timing, shorting, etc... this is your play money.

Some people like to play with their real money, nothing wrong with that if thatís what they want to do.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 01, 2018, 01:02:38 AM

I'll jump on the s&p when it lowers i think

What if it doesn't lower?

Considering its dropped twice for various reasons already this year I'd say this is a silly question - the s&p looks so expensive at the moment I don't think it's a great place to start smashing all your money into it

Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 01, 2018, 01:09:49 AM
Active stock picking versus indexing are two completely different things and shouldn't be compared.

The first is taking a gamble on an individual company.

Indexing, on the other hand, is really making an investment on two assumptions:

1) human population will continue to grow (which increases productivity and profits).
2) technology will continue to improve (which also increases productivity and profits).

As long as one of the above continues, company profits (and hence index fund value) will continue to grow.  With stock picking, you have to pick an individual winner, which is not the same thing at all.

Buffet would say it's not a gamble... Don't confuse what most people do (speculation) with active investing

If I was to stock pick I would do so using very strict rules..but quite frankly I know that many many people fail and simply I don't need to if I can get 10% owning indexes.

Now, the only thing that prompted me to even look into this was the depressing returns Bogle and a couple others are predicting over the next decade  (which alot of people state they can make good judgment on) and it was hard to argue different with Bogle 4% for a decade really is quite depressing and looking into other indexes there are way cheaper alternatives than the S&p 500
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 01, 2018, 01:22:26 AM



Buffet would say it's not a gamble... Don't confuse what most people do (speculation) with active investing



Yes but none of us are world class investors like Buffet (even though some may like to think they are).  For us mere mortals it is a gamble, that's the point.

Now, the only thing that prompted me to even look into this was the depressing returns Bogle and a couple others are predicting over the next decade  (which alot of people state they can make good judgment on) and it was hard to argue different with Bogle 4% for a decade really is quite depressing and looking into other indexes there are way cheaper alternatives than the S&p 500

Not Bogle, or anyone for that matter knows what the market will do over the next decade.  If he did, he'd be wealthier than anyone several times over.  Ignore the noise.  Contribute as much as you can to your funds, then don't look at them and spend time with the family.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Goldielocks on April 01, 2018, 12:26:01 PM
There's an underlying assumption to the OP's post that needs to be addressed.  The assumption is this:

"I'm really smart and clever, and if I work really really hard and really really smart, I can beat the market.  Indexing is great for other people who aren't willing to invest the time/effort into stock picking.  But I am willing to and it'll be GREAT!"

That's simply not a true statement.  Look at the returns of active fund managers over time.  Some years they underperform, some years they overperform.  Average those years together and you get roughly the same rate of return as plain old indexing.

These are some of the smartest people on on the planet with huge amount of resources and time, doing this full time and if they cannot consistently beat the market what in the hell make you think that you can?

hmm..  I wonder if @SC93 picks stocks?
Title: Re: Why is active stock picking so taboo on here ?
Post by: Goldielocks on April 01, 2018, 01:00:53 PM
@tyort1  put it well in their initial post -- "What is your savings rate?".

Let's assume that it is possible to pick stocks.  (Not talking about playing the technicals game, but choosing companies, buying low for value, waiting, then selling.)

Yet - this does not work with the typical individual investor's lifecycle:

Typical Investors Lifecycle


Early -- Up to about $200k, it just does not pay to choose stocks.  The cost for the individual trades or accounts or research newsletters to manage several stocks (e.g., 10) at under $20k each just costs more.  It costs money as well as time to stay informed enough to  make a difference.  The reward of any stock picking incremental is quickly eaten up by the trading costs.

At this point, increasing your savings rate will far, far outweigh any stock picking returns.   Even those 2% MER mutual funds make nearly no impact on overall growth compared to actual savings rates in the early stages.

Mid -- After $200k, the investments start to gain momentum, and snowball.   
--Returns definitely matter and low cost investing is important, equally important to the savings rate.   At this point, it is possible to make $$'s stock picking versus the fees (if we assume that is possible), but the actual $ value of the incremental is in the hundreds/ low thousands of dollars a year.   Versus intense study of the business fundamentals and needing to pay daily attention to the markets for your stocks, and being constantly on edge because a $50k drop is a huge hit to your goals in terms of overall portfolio and annual personal expenses.

High -- At $1 Million, people who are good at stock picking (if we assume it is possible), can make a real difference.   YET, at this point, the snowball has landed, and is growing on its own fairly rapidly.   Most of us start to back down on the equity / stock risk, and look more for risk reduction in our savings, rather than top returns. So again the time spent stock picking again is just not worth it because maximizing the return is no longer the goal.  At this point, it is far better to start looking at corporate bond strategies, tax planning / tax loss harvesting, asset allocations, and other areas to maximum the net return to you in after tax dollars with security and lower risk.

So -- At no time is it to the individual's net, substantial advantage to engage in stock picking. -- Even if we agree it is possible to net 20% better than the market, year over year (e.g., 2% added to rate of returns, 9% returns versus 7.5%).
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on April 01, 2018, 01:17:41 PM

I'll jump on the s&p when it lowers i think

What if it doesn't lower?

Considering its dropped twice for various reasons already this year I'd say this is a silly question - the s&p looks so expensive at the moment I don't think it's a great place to start smashing all your money into it

The S&P has been overvalued by traditional metrics since some time in 2013.   A lot of people make the mistake that thinking a high valuation means a correction is imminent.  That is one possible outcome, but there are other possible outcomes as well.  For example,  market could simply sideways for a few years, or grow very slowly until earnings catch up.   We saw that recently in a roughly two-year period from mid 2014 through mid 2016 when the market didn't do much of anything at all, and then of course was followed by a rally.    If back then you were waiting for an entry point, you'd still be out of the market. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 01, 2018, 03:58:27 PM

I'll jump on the s&p when it lowers i think

What if it doesn't lower?

Considering its dropped twice for various reasons already this year I'd say this is a silly question - the s&p looks so expensive at the moment I don't think it's a great place to start smashing all your money into it

The S&P has been overvalued by traditional metrics since some time in 2013.   A lot of people make the mistake that thinking a high valuation means a correction is imminent.  That is one possible outcome, but there are other possible outcomes as well.  For example,  market could simply sideways for a few years, or grow very slowly until earnings catch up.   We saw that recently in a roughly two-year period from mid 2014 through mid 2016 when the market didn't do much of anything at all, and then of course was followed by a rally.    If back then you were waiting for an entry point, you'd still be out of the market.

I'm not talking about being out the market, I simply mean investing in areas that represent better value or are more out of favour

Every metric of the US states it's expensive and yes it may not correct but with interest rates rising I sense it will drop to better valuations...in my home town the UK seems very cheap at this moment due to brexit, so I think it will pay to have some sensible logic to weight holding based on some value logic.

I will always have some US. Exposure but I think to start 55+ %at these levels doesn't seem like smart investing to me. Even Bogle thinks they are fully valued

As I say I may just keep investing in global small caps where historically they do very well even when the S&p tends to be fully valued..in fact they completely slipped by the tech bubble like there was no issue.

My pensions are all in globally diversified portfolios anyhow

Title: Re: Why is active stock picking so taboo on here ?
Post by: Hargrove on April 02, 2018, 06:20:14 AM
The argument you're making has been made by someone every 3 seconds of the market's history.

And it has been wrong more often than it has been right. That's really it.

It's determined by extremely highly-trained, brilliant professionals losing their shirts repeatedly. It's demonstrated here in various statistics. The stories you read of successes are when people who insist on doing it win, and narrate the bet as if they "knew all along" how the future was going to play out and simply made "sensible" choices. Then maybe they sell a book.

No one can stop you from doing whatever you feel like doing with your money, but people here strongly recommend not timing the market, because the forum tries to give good advice.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 07:11:39 AM
The argument you're making has been made by someone every 3 seconds of the market's history.

And it has been wrong more often than it has been right. That's really it.

It's determined by extremely highly-trained, brilliant professionals losing their shirts repeatedly. It's demonstrated here in various statistics. The stories you read of successes are when people who insist on doing it win, and narrate the bet as if they "knew all along" how the future was going to play out and simply made "sensible" choices. Then maybe they sell a book.

No one can stop you from doing whatever you feel like doing with your money, but people here strongly recommend not timing the market, because the forum tries to give good advice.

It's not timing the market ...it's just looking at valuations in areas that are better than others..I will always be in the market

Doesn't mean I have to be in 60% us if it's stupidly overvalued...and everyone seems to be aligned that there isn't much room to wriggle with US markets especially the S&P 500.

If you look at when the us has crashed and the p/e alone it tells its own story
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 08:17:20 AM
Changing your allocation because you think itís overvalued is precisely market timing.
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on April 02, 2018, 08:36:48 AM
The argument you're making has been made by someone every 3 seconds of the market's history.

And it has been wrong more often than it has been right. That's really it.

It's determined by extremely highly-trained, brilliant professionals losing their shirts repeatedly. It's demonstrated here in various statistics. The stories you read of successes are when people who insist on doing it win, and narrate the bet as if they "knew all along" how the future was going to play out and simply made "sensible" choices. Then maybe they sell a book.

No one can stop you from doing whatever you feel like doing with your money, but people here strongly recommend not timing the market, because the forum tries to give good advice.

It's not timing the market ...it's just looking at valuations in areas that are better than others..I will always be in the market

Doesn't mean I have to be in 60% us if it's stupidly overvalued...and everyone seems to be aligned that there isn't much room to wriggle with US markets especially the S&P 500.

If you look at when the us has crashed and the p/e alone it tells its own story
It's exactly timing the market.

Just because you are not picking individual stocks you are still trying to "pick" something based on a period of "time" i.e. timing.  A rose by any other name is still a rose, said a guy better at words than all of us.

Picking one country over other is timing.  You think the US is overvalued so you might pick UK because Brexit.  Change the words and you see it's the same.  I'm going to pick Apple because of the dope new iPhoneX they just released is going to kill the Galaxy S9, so I think Samsung is overvalued.  What you are doing is market timing.  Stop trying to convince yourself that it is not.
Title: Re: Why is active stock picking so taboo on here ?
Post by: markbike528CBX on April 02, 2018, 09:36:26 AM
.........
If you look at when the us has crashed and the p/e alone it tells its own story
It's exactly timing the market..............
+1

Jamese20 used the word WHEN.  How is WHEN not associated with time, timing?   
While all those timing indicators may (or may not) be true, they are still timing indicators.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on April 02, 2018, 10:02:56 AM
It's not timing the market ...it's just looking at valuations in areas that are better than others..I will always be in the market

Doesn't mean I have to be in 60% us if it's stupidly overvalued...and everyone seems to be aligned that there isn't much room to wriggle with US markets especially the S&P 500.

If you look at when the us has crashed and the p/e alone it tells its own story

It tells a story, but not much of one.  The correlation between P/E and future 1-year returns is very close to, if not actually,  zero.   For 10-year returns, the correlation is only 0.38, which is still quite weak. 

https://personal.vanguard.com/pdf/s338.pdf

From this we can infer that if P/Es are high, then 10-year returns will probably be low.  Which makes sense, you can't be above average all the time.   But it is hard to divine much more than that.  As the article points out, mean-reversion isn't a very strong effect either. 


Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 10:17:43 AM
.........
If you look at when the us has crashed and the p/e alone it tells its own story
It's exactly timing the market..............
+1

Jamese20 used the word WHEN.  How is WHEN not associated with time, timing?   
While all those timing indicators may (or may not) be true, they are still timing indicators.

It's not timing the market at all...it's buying when the valuation is sensiible and from where I am reading these type of levels in the US do tell you alot and corrections and crashes happens at these sort of levels

At very best they could just stagnate and not go very far so why would it be sensible to lump all.my savings Into US at this point? Not one person has gave a sensible reason for it

This ain't market timing this is just picking the right sensible evaluations globally that make sense..this is stuff you learn from sensible investors

Even Bogle went from 75% stocks to 25% stocks just before 2008 due to these valuations

Title: Re: Why is active stock picking so taboo on here ?
Post by: OurTown on April 02, 2018, 10:32:52 AM
Good thread.  I won't say "posting to follow" because that is so taboo on here.
Title: Re: Why is active stock picking so taboo on here ?
Post by: ChpBstrd on April 02, 2018, 10:42:40 AM
Suppose your investment policy statement says you'll maintain an allocation of X% stock and Y% bonds.

It is the year 1999 (or January 2018 if you prefer) and stocks are skyrocketing in value. You absolutely, positively oppose the idea of market timing, but your portfolio is deviating a few percentage points from your target.

Is it market timing to rebalance or is it performance chasing to hold off a couple more months?
Title: Re: Why is active stock picking so taboo on here ?
Post by: simonsez on April 02, 2018, 10:50:31 AM
.........
If you look at when the us has crashed and the p/e alone it tells its own story
It's exactly timing the market..............
+1

Jamese20 used the word WHEN.  How is WHEN not associated with time, timing?   
While all those timing indicators may (or may not) be true, they are still timing indicators.

It's not timing the market at all...it's buying when the valuation is sensiible and from where I am reading these type of levels in the US do tell you alot and corrections and crashes happens at these sort of levels

At very best they could just stagnate and not go very far so why would it be sensible to lump all.my savings Into US at this point? Not one person has gave a sensible reason for it

This ain't market timing this is just picking the right sensible evaluations globally that make sense..this is stuff you learn from sensible investors

Even Bogle went from 75% stocks to 25% stocks just before 2008 due to these valuations
Okay, you're "timing valuations".  You clearly are not convinced by 3 full pages yet, so do your thing.  If calling timing the market something else makes you feel better, go for it.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 11:05:07 AM
.........
If you look at when the us has crashed and the p/e alone it tells its own story
It's exactly timing the market..............
+1

Jamese20 used the word WHEN.  How is WHEN not associated with time, timing?   
While all those timing indicators may (or may not) be true, they are still timing indicators.

It's not timing the market at all...it's buying when the valuation is sensiible and from where I am reading these type of levels in the US do tell you alot and corrections and crashes happens at these sort of levels

At very best they could just stagnate and not go very far so why would it be sensible to lump all.my savings Into US at this point? Not one person has gave a sensible reason for it

This ain't market timing this is just picking the right sensible evaluations globally that make sense..this is stuff you learn from sensible investors

Even Bogle went from 75% stocks to 25% stocks just before 2008 due to these valuations
Okay, you're "timing valuations".  You clearly are not convinced by 3 full pages yet, so do your thing.  If calling timing the market something else makes you feel better, go for it.

I suppose going into a supermarket that states 30% price increases all around makes you want to keep buying too ?

Believe it or not something different than blindly whacking your money in every month doesn't means it's market timing

It's just sensible business sense and good practice... And when sensible business people state 4% actual return's not even accounting for inflation for a whole decade are reasonable expectation and the argument's are sound for it then why would it not make sense to look for better valued markets ?? Again this is not market timing
Title: Re: Why is active stock picking so taboo on here ?
Post by: talltexan on April 02, 2018, 11:49:12 AM
If something happens that causes grocery prices to spike 30%, I don't walk out of the grocery store. Because I cannot. I need to make dinner tonight. It's really not a useful analogy.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 11:55:02 AM
If something happens that causes grocery prices to spike 30%, I don't walk out of the grocery store. Because I cannot. I need to make dinner tonight. It's really not a useful analogy.

There are more shop's to pick from...so not it's pretty good analogy
Title: Re: Why is active stock picking so taboo on here ?
Post by: NoStacheOhio on April 02, 2018, 12:19:35 PM
If something happens that causes grocery prices to spike 30%, I don't walk out of the grocery store. Because I cannot. I need to make dinner tonight. It's really not a useful analogy.

There are more shop's to pick from...so not it's pretty good analogy

apostrophe s is possessive, not plural.

/pedantic

Also, you're market timing. If you want permission, ask somewhere else.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 02:16:57 PM
If something happens that causes grocery prices to spike 30%, I don't walk out of the grocery store. Because I cannot. I need to make dinner tonight. It's really not a useful analogy.

There are more shop's to pick from...so not it's pretty good analogy

apostrophe s is possessive, not plural.

/pedantic

Also, you're market timing. If you want permission, ask somewhere else.

Wow really ? Such arrogance and no it's not and no I am not asking permission either

If you are so knowledgeable and insightful and such an expert on investment and market returns please discredit Bogle with some logical analysis otherwise this high horse response is quite pathetic and meaningless
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on April 02, 2018, 03:06:46 PM
If something happens that causes grocery prices to spike 30%, I don't walk out of the grocery store. Because I cannot. I need to make dinner tonight. It's really not a useful analogy.

There are more shop's to pick from...so not it's pretty good analogy

apostrophe s is possessive, not plural.

/pedantic

Also, you're market timing. If you want permission, ask somewhere else.

Wow really ? Such arrogance and no it's not and no I am not asking permission either

If you are so knowledgeable and insightful and such an expert on investment and market returns please discredit Bogle with some logical analysis otherwise this high horse response is quite pathetic and meaningless
Jamese it is market timing.  And my "sensible" answer to you is that not timing means you create an investment strategy that makes sense, regardless of situation, and then you follow it.  Anything that involves assuming you know that something will perform better than something else and therefore you react to that is the very definition of market timing.  You are claiming that you know, because of so many people you trust, stating that 4% returns will be going on for a decade.  What makes you feel that anywhere else will be any better?  Why do you automatically feel because the news is "bad" in your opinion in US Grocers that going to shop for dinner at European Grocers will not come with a 45% price increase?  With the global economy so tied together now I think it would be difficult for any particular area to suddenly throw off massively different returns.  Just look at the global markets over the last month.  It's the old "when the US has the flu the rest of the world catches a cold".  The trade wars causing concern are going everywhere, because guess what, to have a trade war takes more than one region. 

As other have said, you can call it whatever you want.  It is still gazing into a crystal ball and claiming you can see clearly what no one can see.  In this forum we call that market timing.  You can call is Jamese's get rich quick scheme.  Does not make it anything different, but it apparently will make you feel better.
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 03:17:27 PM
Everyone is wasting their time on this thread.  This guy has already made up his mind.  He's not interested in your opinion.  Guess he has to learn the hard way.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 03:40:06 PM
Everyone is wasting their time on this thread.  This guy has already made up his mind.  He's not interested in your opinion.  Guess he has to learn the hard way.

As I am not market timing I won't be learning anything the hard way im afraid...just because I don't feel that you should be overweighted in US stocks at this moment in time doesn't mean I will be deciding when to come in and out of the market

And the above about because the us is down every where else is down is wrong too..small caps for example missed the 2002 crisis completely and the Pacific stocks are up today whilst us had dropped almost 3%

Also globally diversified portfolios didn't get hit as hard as US ones during the recent crashes either

Just because I am challenging peoples standard "you are market timing" bs which is completely wrong as it implies I am trying to dance in and out of markets which is not what I am suggesting...doesn't mean you should not change asset allocations accordingly based on certain business sense criteria and sound analysis and also doesn't mean I'm not willing to listen to anyone

Just don't expect.me to respect the common misconception of "it's market timing" because you possibly have no idea what I am talking about



Title: Re: Why is active stock picking so taboo on here ?
Post by: never give up on April 02, 2018, 03:44:04 PM
Hi Jamese20, fellow UKer here. It looks as though you have been having fun in this thread! I guess you have asked a question and by now you've probably got your answer. I get the sense from your initial post that you were generally asking what can you do to hurry things along towards FIRE. I would suggest you can do two things that are in your control:

1. Lower your expenses as much as possible (Challenge yourself with regards to what you're spending money on. Does it make you happy, are you as efficient as possible?)
2. What can you do to increase your income?

The third aspect of FIRE is of course being brave enough to invest what isn't being spent. You're right some people in life are lucky. Some will find a way to do it faster than the rest. They may be paid a ridiculously high salary. They may pick individual stocks that take off, they may inherit, they may win some money, they may find buried treasure in their garden one day when planting some winter bulbs. For every one person that stock picks successfully there must be dozens that either lose or miss out on gains.

The general principle of these forums is that we don't require luck or skill or even a really high paying job to achieve our goal. The goal is in reach and is achievable for all, without all these things going for us. All we need to do is lower our expenses as much as possible and invest the rest regularly in low cost index funds with a sensible asset allocation. If you want to have a lower exposure to the US then fair enough. Throw in a sprinkle of patience and one day we will wake up having achieved FIRE.

So why is active stock picking so taboo on here? It's because why mess around with something that is virtually certain to work (other than in some doomsday scenario).
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 03:47:26 PM
I agree you shouldn't be invested solely in the US.  In fact it makes as much sense to index globally as it does in the US.

But that has nothing to do with what you're talking about.  What you're referring to most certainly is market timing.

The approach should be to decide how you want to allocate your assets long term.  If you're going to adjust allocations when you think something is overvalued simply because someone famous said so or because you have a feeling about it, that is most certainly attempting to time the market.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 04:11:21 PM
I agree you shouldn't be invested solely in the US.  In fact it makes as much sense to index globally as it does in the US.

But that has nothing to do with what you're talking about.  What you're referring to most certainly is market timing.

The approach should be to decide how you want to allocate your assets long term.  If you're going to adjust allocations when you think something is overvalued simply because someone famous said so or because you have a feeling about it, that is most certainly attempting to time the market.

Well I put it to you I'm.not marketing timing... And I do put it to you on a long term basis based on earning and growth potential and price that in a general way people can state whether a specific country or sector is overpriced...just look at 2002 and 2008 and the metrics...tells you alot

It doesn't tell you when the next crash will be or if you should sell.. but it does state where your.money might be invested elsewhere better to get more of an average return than a very low one for a specific time period..to.me I'd like to try and get more of the average returns...and at this moment the US seems heavily overvalued based on not alot of sound reasonable business logic

Of course we are now seeing signs of that overvalue coming out of the us markets... And I for one don't find it a surprise at all considering the metrics

By this time next year the us might be at a decent metric and offer fair returns based in those metrics. Even 3-4, years ago the us had fair values and was worth investing in... unfortunately only my pension will have reaped the rewards of that.

If you think that's market timing so be it...but it really isn't..

"No matter how wonderful business it is, it is not worth an infinite price - so we need a price that makes sense " Charlie munger

I suppose he would be called a market timer on this forum too

Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 04:18:47 PM


"No matter how wonderful business it is, it is not worth an infinite price - so we need a price that makes sense " Charlie munger

I suppose he would be called a market timer on this forum too


Of course Munger/Buffet are market timers.  That's what they've built their wealth doing after all.  What we're trying to point out to you is that you're not warren buffet.  You have to be right twice (when you sell, and when you buy) to be a successful active trader attempting to time the market.  Good luck with that.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 04:22:27 PM
Hi Jamese20, fellow UKer here. It looks as though you have been having fun in this thread! I guess you have asked a question and by now you've probably got your answer. I get the sense from your initial post that you were generally asking what can you do to hurry things along towards FIRE. I would suggest you can do two things that are in your control:

1. Lower your expenses as much as possible (Challenge yourself with regards to what you're spending money on. Does it make you happy, are you as efficient as possible?)
2. What can you do to increase your income?

The third aspect of FIRE is of course being brave enough to invest what isn't being spent. You're right some people in life are lucky. Some will find a way to do it faster than the rest. They may be paid a ridiculously high salary. They may pick individual stocks that take off, they may inherit, they may win some money, they may find buried treasure in their garden one day when planting some winter bulbs. For every one person that stock picks successfully there must be dozens that either lose or miss out on gains.

The general principle of these forums is that we don't require luck or skill or even a really high paying job to achieve our goal. The goal is in reach and is achievable for all, without all these things going for us. All we need to do is lower our expenses as much as possible and invest the rest regularly in low cost index funds with a sensible asset allocation. If you want to have a lower exposure to the US then fair enough. Throw in a sprinkle of patience and one day we will wake up having achieved FIRE.

So why is active stock picking so taboo on here? It's because why mess around with something that is virtually certain to work (other than in some doomsday scenario).

Yea I have buddy :) thanks for the note.. I have concluded that individual stock picking is a tough game and takes alot of work and mostly luck... A few books I have read recently gave me some inspiration but why bother when the average returns are plenty for me to be content with over time.

Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 04:23:25 PM


"No matter how wonderful business it is, it is not worth an infinite price - so we need a price that makes sense " Charlie munger

I suppose he would be called a market timer on this forum too


Of course Munger/Buffet are market timers.  That's what they've built their wealth doing after all.  What we're trying to point out to you is that you're not warren buffet.  You have to be right twice (when you sell, and when you buy) to be a successful active trader attempting to time the market.  Good luck with that.

Course they aren't... Dear oh dear
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 04:25:14 PM
Course they aren't... Dear oh dear

You're kidding right?

Their entire strategy has been buying up businesses at the right time.  What part do you not understand? 





Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 04:28:21 PM
Course they aren't... Dear oh dear

You're kidding right?

Their entire strategy has been buying up businesses at the right time.  What part do you not understand?

You must be the one who is kidding... "I don't and have never known anyone who can time markets " warren buffet

He evaluates businesses based on sound evaluations... This is NOT market timing
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 04:30:06 PM
Course they aren't... Dear oh dear

You're kidding right?

Their entire strategy has been buying up businesses at the right time.  What part do you not understand?

You must be the one who is kidding... "I don't and have never known anyone who can time markets " warren buffet

He evaluates businesses based on sound evaluations... This is NOT market timing

LOL.  He only buys businesses when they are at the right PRICE.  That is precisely market timing.  Wow just wow.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 04:33:16 PM
Course they aren't... Dear oh dear

You're kidding right?

Their entire strategy has been buying up businesses at the right time.  What part do you not understand?

You must be the one who is kidding... "I don't and have never known anyone who can time markets " warren buffet

He evaluates businesses based on sound evaluations... This is NOT market timing

LOL.  He only buys businesses when they are at the right PRICE.  That is precisely market timing.  Wow just wow.

Buying a business at a fair price is NOT market timing.. and warren buffet would never agree with you on your statement
Title: Re: Why is active stock picking so taboo on here ?
Post by: never give up on April 02, 2018, 04:34:09 PM
Asset allocation is a completely different question than stock picking. I can see where you're coming from Jamese20. It all makes sense now but you've got to bear in mind your audience. I'm assuming 90% of people on these boards are from the US/Canada. They are extremely likely to have the vast majority of their stock portfolio in the US market. I would if I was a US citizen living there. That's why VTSAX is quoted so much on here. In the US its not marketed as a US fund but a total stock market fund. We think of a total stock market fund as something that invests globally. You may have had more success on the UK board if you had an allocation question.

So for US people they don't really care about any thoughts of the US being overvalued. That for them is market timing. They will just keep buying regularly and be quite happy being primarily in their home market. I'm assuming most US people are at least 80% invested in the US. Please any US people jump in here if I'm talking nonsense there.

If you are not talking about dancing in and out of the market and you are wanting to invest in index funds then I can see where you're coming from, but from a UK perspective. We are not likely to invest 90% of our portfolio in the FTSE100 as a US person may in their total stock market fund. We are also not going to be 90% in the US either. Most Vanguard global trackers here in the UK will have 50-60% allocated to the US. If you think that's too high then that's fine. Most global funds won't suit you. I think you have a couple of options:

1. Vanguard LifeStrategy 100 is approx 40% in the US
2. You use separate UK, Europe, US, Japan, Asia-Pacific, Emerging markets and Bond tracker funds to allocate exactly what you want to each geographical area.

However option 2 takes more effort to manage and you lose some of the simplicity with regards to rebalancing of a global tracker. You then also have the issue of when do you decide one of the regions is now undervalued and which is overvalued in order to rebalance appropriately. Also why do you think you know better than Vanguard do in how they have allocated their LifeStrategy fund for example?
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 04:34:29 PM
Alright I'm done here....this is pointless.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 04:36:23 PM
Alright I'm done here....this is pointless.

I think it's best as your are taking utter bs
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 04:43:48 PM
Asset allocation is a completely different question than stock picking. I can see where you're coming from Jamese20. It all makes sense now but you've got to bear in mind your audience. I'm assuming 90% of people on these boards are from the US/Canada. They are extremely likely to have the vast majority of their stock portfolio in the US market. I would if I was a US citizen living there. That's why VTSAX is quoted so much on here. In the US its not marketed as a US fund but a total stock market fund. We think of a total stock market fund as something that invests globally. You may have had more success on the UK board if you had an allocation question.

So for US people they don't really care about any thoughts of the US being overvalued. That for them is market timing. They will just keep buying regularly and be quite happy being primarily in their home market. I'm assuming most US people are at least 80% invested in the US. Please any US people jump in here if I'm talking nonsense there.

If you are not talking about dancing in and out of the market and you are wanting to invest in index funds then I can see where you're coming from, but from a UK perspective. We are not likely to invest 90% of our portfolio in the FTSE100 as a US person may in their total stock market fund. We are also not going to be 90% in the US either. Most Vanguard global trackers here in the UK will have 50-60% allocated to the US. If you think that's too high then that's fine. Most global funds won't suit you. I think you have a couple of options:

1. Vanguard LifeStrategy 100 is approx 40% in the US
2. You use separate UK, Europe, US, Japan, Asia-Pacific, Emerging markets and Bond tracker funds to allocate exactly what you want to each geographical area.

However option 2 takes more effort to manage and you lose some of the simplicity with regards to rebalancing of a global tracker. You then also have the issue of when do you decide one of the regions is now undervalued and which is overvalued in order to rebalance appropriately. Also why do you think you know better than Vanguard do in how they have allocated their LifeStrategy fund for example?

Yes I gathered that..and thanks for seeing and having a more sensible and serious discussion with me rather than quite frankly being arrogantly wrong.

The life strategy ones are allocated and heavily UK orientated which at the moment isn't so bad as the UK is out of favour due to brexit, however I look at the FTSE 250 with envy as not only is the dividend really high it's growth has been excellent too..if only!

As you say...it will take.more work but I am way more into this stuff than most will be I suspect on here so I will enjoy focusing on it abit more.

It may do me good or it may not..but going all in on US and most likely receiving below average returns for a decade doesn't really sound like a sound plan at this stage

Of course if the us don't continues its downward trend it could all change! Not so much for the FIRED folks out there but as a buyer it would !

Title: Re: Why is active stock picking so taboo on here ?
Post by: never give up on April 02, 2018, 04:52:39 PM
I understand but the latter part of this thread is just confusion around allocation. You're not really talking about stock picking. There is no need to be rude to anyone on here. I've found most people on here to be incredibly helpful, and if they disagree it is generally only because they believe something different, but they are trying to help you.

I think there is just confusion here regarding allocation as per my last post. Its very different if you are a US citizen in the US than it is if you're in the UK. In the US they will primarily invest in the US stock market. So when you are talking about it being overvalued then that is market timing from their perspective because they're not going to stop investing in the US!

As a UK investor many funds will have a different allocation with regards to the US. Some may be as high as 60% while others will be around 40%. I think this is what you are questioning, which is fine as you're in the UK. Anyway I won't repeat my last post but I think that should help you.

Option 2 is of course cheaper. So if you enjoy tinkering and you aren't going to go for a crazy allocation then I think that's fine.

As I mentioned you may find questions like this are best to post on the UK board first.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 04:58:26 PM
I understand but the latter part of this thread is just confusion around allocation. You're not really talking about stock picking. There is no need to be rude to anyone on here. I've found most people on here to be incredibly helpful, and if they disagree it is generally only because they believe something different, but they are trying to help you.

I think there is just confusion here regarding allocation as per my last post. Its very different if you are a US citizen in the US than it is if you're in the UK. In the US they will primarily invest in the US stock market. So when you are talking about it being overvalued then that is market timing from their perspective because they're not going to stop investing in the US!

As a UK investor many funds will have a different allocation with regards to the US. Some may be as high as 60% while others will be around 40%. I think this is what you are questioning, which is fine as you're in the UK. Anyway I won't repeat my last post but I think that should help you.

Option 2 is of course cheaper. So if you enjoy tinkering and you aren't going to go for a crazy allocation then I think that's fine.

As I mentioned you may find questions like this are best to post on the UK board first.

I still think even a US investor should think about other areas other than the US...I don't see why location should have much to do it..the whole market is not made of just the US

I'm not normally rude by the way but the last guy had to be on a wind up
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 05:00:32 PM


I still think even a US investor should think about other areas other than the US...I don't see why location should have much to do it..the whole market is not made of just the US


The title of your thread is about active stock picking.

Having allocations outside the US has nothing to do with active stock picking.  Why do you keep bringing up investing outside the US when it has nothing to do with your thread?
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 05:04:08 PM


I still think even a US investor should think about other areas other than the US...I don't see why location should have much to do it..the whole market is not made of just the US


The title of your thread is about active stock picking.

Having allocations outside the US has nothing to do with active stock picking.  Why do you keep bringing up investing outside the US when it has nothing to do with your thread?

This discussion has evolved from the original discussions of individual stock picking

Title: Re: Why is active stock picking so taboo on here ?
Post by: never give up on April 02, 2018, 05:11:28 PM
I always think of the US as a continent really rather than a country. When you think of its sheer size and scale and the global impact their companies have. A lot of the data and things like the Trinity study are all based on US data. So if I was a US person in the US then I would primarily be invested in the US with perhaps a 10% allocation internationally to capture emerging markets etc. I wouldn't have thought there would be many US people that would have less than 50% of their stock portfolio in the US. It's just a different mindset than we would have in the UK.

The US stock market historically has been the strongest. They are very business friendly, stock friendly etc. We don't know how it will perform in the next ten years but bearing in mind you are aiming for a long retirement then you certainly can't afford to miss out on US stock market gains. So if 40% is too low (in the VGLS100 fund) how low are you thinking of going and how will you know when to pile back in? We are now in market timing territory. I would rather pick an allocation and stick with it. If the US performs badly relative to the rest of the world over the next few years then great, I've been buying at lower prices haven't I? Its 10-15 years time or whenever when you want it to rocket up I.e. in the years just after FIRE.
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 02, 2018, 05:14:58 PM
how low are you thinking of going and how will you know when to pile back in? We are now in market timing territory.


Exactly this ^^^^^^^

Read this several times slowly OP
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 05:23:23 PM
how low are you thinking of going and how will you know when to pile back in? We are now in market timing territory.


Exactly this ^^^^^^^

Read this several times slowly OP

I will aim.to buy  based on fundamentals... I will always have us exposure but the amount will vary based on those fundamentals...it's no different to folks who play around with bond allocations..

I haven't fully figured it all out yet myself and I have plenty of time at the minute to iron out the way I will approach it

I think most logical investors would agree the US is expensive from any metric you look for and to assume 10% returns from this point on would not be deemed reasonable...do you honestly think the us market and the rising of interest rates heavily on the table will not have some sort of reversion to the mean in the next 10 years ? Has that ever not happened ? I was about to say 1980 - 2000 but there was that little episode in 1987
Title: Re: Why is active stock picking so taboo on here ?
Post by: NoStacheOhio on April 02, 2018, 05:43:23 PM
Wow really ? Such arrogance and no it's not and no I am not asking permission either

If you are so knowledgeable and insightful and such an expert on investment and market returns please discredit Bogle with some logical analysis otherwise this high horse response is quite pathetic and meaningless

Is knowing English arrogant, or calling market timing by its name arrogant?

Go start this thread over at Bogleheads. I'll wait.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 02, 2018, 05:47:15 PM
Wow really ? Such arrogance and no it's not and no I am not asking permission either

If you are so knowledgeable and insightful and such an expert on investment and market returns please discredit Bogle with some logical analysis otherwise this high horse response is quite pathetic and meaningless

Is knowing English arrogant, or calling market timing by its name arrogant?

Go start this thread over at Bogleheads. I'll wait.

I don't have time for your smart arse arrogant comments
Title: Re: Why is active stock picking so taboo on here ?
Post by: moof on April 02, 2018, 06:07:44 PM
...
I think most logical investors would agree the US is expensive from any metric you look for and to assume 10% returns from this point on would not be deemed reasonable...do you honestly think the us market and the rising of interest rates heavily on the table will not have some sort of reversion to the mean in the next 10 years ? Has that ever not happened ? I was about to say 1980 - 2000 but there was that little episode in 1987
There are funds out there that trade based on fundamentals as you seem to want.  You pay fees of course.  You could spend a lot of time to do this manually yourself as well.  Value investing is a thing, go nuts.

In the end your money is your money, we don't care what you do with it.  I've found in the past that fervent folks like you often are playing with relatively small chunks of money, and want to hit big as a way to leapfrog to a bigger stache.  Correct me if I am wrong, but I am guessing you are sitting on <200k?  My psychology changed when my 401k balance got big enough to make me sit up and take notice.  I became more disciplined as I realized my mistakes could (and did) carry a painful price tag.  Getting the exact right investment strategy dialed in is not super important if you are still saving like mad with your end number still far off, it gets more important as your returns start to exceed your annual contributions.

I realized a long time ago after mentors of mine lost big on "sure thing" JDSU that stock picking and chasing explosive growth is mostly a fool's errand, and not for me.  If there was a secret strategy to "win" the stock market I am guessing that the HORDES of wall street'ers who live and breath this stuff would beat me to it.  If you think your strategy will beat the market, great, go do it.  If you need validation from an internet forum for your strategy, it is a sign you are not that confident in that belief.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Goldielocks on April 02, 2018, 07:39:14 PM
Course they aren't... Dear oh dear

You're kidding right?

Their entire strategy has been buying up businesses at the right time.  What part do you not understand?

You must be the one who is kidding... "I don't and have never known anyone who can time markets " warren buffet

He evaluates businesses based on sound evaluations... This is NOT market timing

Jamese -- what you describe is investing based on fundamentals (business facts and annual reports, management), rather than technicals (stock movement / trends).

Even fundamentals based investing requires timing -- watching for when the fundamentals are optimized versus cost.

Investing without market time is dollar cost averaging (example).
Title: Re: Why is active stock picking so taboo on here ?
Post by: Radagast on April 02, 2018, 08:05:06 PM
I am ok with value-based investing. As long as you are broadly diversified, keeping costs low, minimizing turnover, and not selling at a loss you are OK. Naive performance-chasing, selling at a loss, and waiting in lower-yielding cash are the things that will screw you.

Even then you will probably underperform the market once you factor in your time at an hourly rate.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 03, 2018, 12:17:23 AM
I am ok with value-based investing. As long as you are broadly diversified, keeping costs low, minimizing turnover, and not selling at a loss you are OK. Naive performance-chasing, selling at a loss, and waiting in lower-yielding cash are the things that will screw you.

Even then you will probably underperform the market once you factor in your time at an hourly rate.

It's not that timely to be honest.. and all I am simply doing is providing some common sense to the markets...

It's quite ironic that the people are calling me a market timer see the ones heavily all in on US ....this implies that you are trying to beat the market anyhow lol.

US is just over half the market at the end of the day and at such high levels I think the chances are it will pay to look at the other 45%

This is why I like small caps globally as they seem to do well even in economic crisis
Title: Re: Why is active stock picking so taboo on here ?
Post by: jeroly on April 03, 2018, 12:38:50 AM
Here's another .02 worth...

There are several reasons why one should expect that you would underperform the market, on average, if you pick your own stocks.

1.  While I don't have citations to back it up, I have read in the past that a very small number of stocks are responsible for a huge chunk of the gains in the market in any given timeframe.  Something like 10 of the 5000 in the Wilshire index may provide a third of the gain.  If your stock selection happens to pick those stocks then you'll likely outperform but if you don't pick those you'll likeley underperform.  So it's somewhat like winning the lottery... yes you may have found six very good stocks but they may or may not do better than the market overall.

2.  Unless you have special insight / inside information (the latter of which is illegal) then you're making your decisions on factors that are already being priced in by the market, and unless your insight is better than that of the analysts whose jobs are to follow those industries and stocks, you're probably not going to have better performance than the market overall.

3.  As an active trader you're going to be buying and selling securities on a more frequent basis than an index fund does, and you're going to be paying both commissions and the 'spread' (difference between bid and ask prices) every time you buy and sell, cutting into your profits.

All that having been said...

Maybe you are a better picker than the average bear.  If so, simulating a trading program can demonstrate your trading prowess and can be done at zero cost.  Pick your stocks on paper and see if your results are better or worse than the market your portfolio, which you will leave in index funds.  If you see significantly better results, then you might consider actively managing a portion of your portfolio.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 03, 2018, 03:06:09 AM
Here's another .02 worth...

There are several reasons why one should expect that you would underperform the market, on average, if you pick your own stocks.

1.  While I don't have citations to back it up, I have read in the past that a very small number of stocks are responsible for a huge chunk of the gains in the market in any given timeframe.  Something like 10 of the 5000 in the Wilshire index may provide a third of the gain.  If your stock selection happens to pick those stocks then you'll likely outperform but if you don't pick those you'll likeley underperform.  So it's somewhat like winning the lottery... yes you may have found six very good stocks but they may or may not do better than the market overall.

2.  Unless you have special insight / inside information (the latter of which is illegal) then you're making your decisions on factors that are already being priced in by the market, and unless your insight is better than that of the analysts whose jobs are to follow those industries and stocks, you're probably not going to have better performance than the market overall.

3.  As an active trader you're going to be buying and selling securities on a more frequent basis than an index fund does, and you're going to be paying both commissions and the 'spread' (difference between bid and ask prices) every time you buy and sell, cutting into your profits.

All that having been said...

Maybe you are a better picker than the average bear.  If so, simulating a trading program can demonstrate your trading prowess and can be done at zero cost.  Pick your stocks on paper and see if your results are better or worse than the market your portfolio, which you will leave in index funds.  If you see significantly better results, then you might consider actively managing a portion of your portfolio.

Hi buddy

The title is misleading now as the conversation of of individual stock picking everyone is aligned on...I think it's actually hard to distinguish between luck and skill

After all, a perfectly good business I know recently have just called in the administrators and are likely to go bust if a new owner doesn't come in and buy the business... So luck plays it's part no matter how skilled you are.

The conversation is recently about looking over overall markets in certain countries and using similar principles to decide what % you should be invested in based on business analysis that is logical.

Title: Re: Why is active stock picking so taboo on here ?
Post by: jeroly on April 03, 2018, 03:21:29 AM

Hi buddy

The title is misleading now as the conversation of of individual stock picking everyone is aligned on...I think it's actually hard to distinguish between luck and skill

After all, a perfectly good business I know recently have just called in the administrators and are likely to go bust if a new owner doesn't come in and buy the business... So luck plays it's part no matter how skilled you are.

The conversation is recently about looking over overall markets in certain countries and using similar principles to decide what % you should be invested in based on business analysis that is logical.

Picking markets to invest in is really just another type of picking.  Why do you think you can ID the best markets to be in any better than, say, foreign currency analysts working in concert with foreign market analysts (which the investment houses and hedge funds are certainly using in order to try to find opportunities)? 
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 03, 2018, 04:37:39 AM

Hi buddy

The title is misleading now as the conversation of of individual stock picking everyone is aligned on...I think it's actually hard to distinguish between luck and skill

After all, a perfectly good business I know recently have just called in the administrators and are likely to go bust if a new owner doesn't come in and buy the business... So luck plays it's part no matter how skilled you are.

The conversation is recently about looking over overall markets in certain countries and using similar principles to decide what % you should be invested in based on business analysis that is logical.

Picking markets to invest in is really just another type of picking.  Why do you think you can ID the best markets to be in any better than, say, foreign currency analysts working in concert with foreign market analysts (which the investment houses and hedge funds are certainly using in order to try to find opportunities)?

I really don't think it's that difficult...what makes you think the us will deliver any meaningful return over the next decade based on the fundamentals?

For example - ex us small caps produced a 9% return and the S&p 500 returns a 2% return from 2000 - 2012.. Whilst hindsight is a wonderful thing in 2000 valuations were off the charts

Now that don't mean today they can go higher and higher but it really isn't based on much logical business sense

I do find it foolish to lump all your money in the US in today's current climate and I haven't really seen much evidence to suggest this is still a sensible idea over the next decade.

I think the very highest I would go is 50% at this moment in time which is in line pretty much with market cap of the US. Anyhow...but I am looking at lower than that

Having said all that the way the markets are starting to tumble in the US may suggest sooner than expected buying opportunities

Over time I don't think it will hurt to adjust % weighting based on fundamentals
Title: Re: Why is active stock picking so taboo on here ?
Post by: jeroly on April 03, 2018, 04:45:01 AM
From a diversification perspective, I'm all in favor of having a large international component (although a argument can be made that international operations of US companies already provides a big chunk of international.  I'm in the process of moving towards 50/50 us/intl in the stock portion of my portfolio myself... however I don't think picking an overweight in [pick the country/region/stock/industry group of your choice] is going to help returns on average... but by all means go ahead if it has meaning (or is fun!) for you. 
Title: Re: Why is active stock picking so taboo on here ?
Post by: UnleashHell on April 03, 2018, 04:45:24 AM
I have been active stock picking since 2007. Its hard.
I closely followed the activity of a couple of buy and hold type of major investors as its obvious that trading devalues your returns if you are constantly trading. plus short term capital gains can be an issue if its not in a tax sheltered account.
The hardest thing is doing the research. Which you need to do if its anything less than a guessing game.
I also only used a tax sheltered fund whilst keeping my 401k separate (and in index funds)
The issue isn't picking stocks - its rejecting then. Doing the intense research required and digging through years of annual reports and understanding the companies is the hardest thing to do. If , after all of that, you can't understand where the company is making their money and going to continue making their money and be better than the competition then you drop that stock.

I ended up with a narrow portfolio. Even then you can't predict everything. Financial markets are normally a good place to make money - after all a bank thats trading other peoples money and is good at skimming a commission is a great place to be a shareholder. Plus theres no way a major player is go under.
Thats how i lost a chunk in Lehman Bros!
Luckily I had a few other positions that did fine in 2008 - my returns that year were 0%. Compared to the rest of the market it was awesome. Being in a company that was on the right side of the CDD swaps helped a lot. could just have easily been in AIG and lost masses instead. I got lucky.

I also invested in Oil and gas.one company had a lot of rights int he gulf and crashed after deepwater horizon. The rights were worth a fortune once the gulf opened up again so I couldn't lose.
Wrong. They ran out of money before the gulf opened and the rights were worth very little.

I also got into BP after deepwater. They have worldwide operations an could survive pretty much anything. Even the outrageous gulf claims that they had to pay out. I still own them. the Dividend has been the savior there - the share price - not so much.

I did hold some other positions for a while and did fine. I timed MBIA just fine - doubled my money and got out before the Puerto Rico bond crisis loomed its head. Got some good traction on Disney and J&J - looking back I could have kept them.

I had to free up some money in 2013 and rebalanced my account and ended up with just a few holdings. I'd bought BAC and C plus a couple of others but I was running out of the time I used to have to analyse new positions.

from September 2013 to the end of 2017 I beat the S&P by 60%
IT was with a very narrow set of holdings that I selected and held for a long time. There were times when I made the market look like losers. Other times the market would go up and my holdings would decrease. Its stressful.

Right now I'm changing it all up. I've been successful but couldn't throw the money I wanted at it. If I had I could have lost the lot.
Even though I have been successful I know that the odds of my continued success is very low. I have the funds in a Vanguard account and will be changing them to index funds over the next few months. I need the stability as I approach FIRE. I also don;t want to be reading annual reports all the time. I have better things to do with my life.

So yes - you can be a stock picker but I wouldn't recommend it. Its hard work and even those shares that you think will do great can turn to crap.

When oil is at 120 and you invest in a company that'll do great as long as oil doesn't drop below 50 - its and easy pick. And a good way to get wiped out as a shareholder.

I got some right and some wrong but taking the chance to make an extra few % over an index just isn't worth risking my retirement on.


I'd also add that I think I rejected about 98% of shares once I'd read 5 years of annual reports. If you put that level of work into it then good luck - i wouldn't risk it with too much money though.
Title: Re: Why is active stock picking so taboo on here ?
Post by: never give up on April 03, 2018, 05:09:18 AM
http://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/ (http://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/)

Jamese20 - I donít know if youíve looked at the Monevator site at all? It is a good resource for UK investors. The above link may be a good read. There are other articles as well with examples of various asset allocations to suit UK needs.

There is nothing wrong with having separate index trackers as I mentioned earlier but I wouldnít deviate too much from market cap.
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on April 03, 2018, 08:48:53 AM
Picking markets to invest in is really just another type of picking.   

Several of us have been trying to make that point for quite some time.

The new cognitive dissonance play that is being employed while covering ears and saying "it's not market timing" really loudly, is that US investors are not aware there is a great big world out there and we only look in the US.  It could not be possible that we totally understand that and that we understand the poster is talking about how much to place in each market, which in and of itself would be asset allocation, a decision made once and perhaps adjusted every decade or so.  Adding in the details of doing this because of some metrics and analysis places it, as mentioned above, into just another type of picking, and picking by any other name, is market timing.  We get that it's how much do I place in the UK markets and how much in Asian markets and how much in US.  None of us missed that, but he's persuaded himself that this is not market timing because we Yanks just don't understand that the UK exists.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Scandium on April 03, 2018, 09:24:07 AM
I am ok with value-based investing. As long as you are broadly diversified, keeping costs low, minimizing turnover, and not selling at a loss you are OK. Naive performance-chasing, selling at a loss, and waiting in lower-yielding cash are the things that will screw you.

Even then you will probably underperform the market once you factor in your time at an hourly rate.

It's not that timely to be honest.. and all I am simply doing is providing some common sense to the markets...

It's quite ironic that the people are calling me a market timer see the ones heavily all in on US ....this implies that you are trying to beat the market anyhow lol.

US is just over half the market at the end of the day and at such high levels I think the chances are it will pay to look at the other 45%

This is why I like small caps globally as they seem to do well even in economic crisis
Why do you assume all US based people here are only investing domestically? I know many, including myself, have ~50/50 US/international. As the wold market cap suggests. Yes, only going US stocks is making a bet on the US, I don't think many would dispute that.

Just because Bogle is 100% US doesn't mean people here follow it (though some do). If he lost half, Bogle would still have more money then he needs, he can afford to not be diversified. Many of us here don't. And he's also an old-school American exeptionalist.

It's also fantastically rude to come here and insult long-term members, who are extremely helpful to many and frankly know more than you do. So, you made up your own definition of market timing (going in and out of individual stocks). And that's not what you do so you're not market timing. Ok, you've justified your actions to yourself. Good for you. Now move on, you don't need to (and can't) justify it to us.

In summary, you attack a version of market timing you made up. And you attack "investing 100% US", which I haven't seen anyone recommend? How many horses do you feed with all that straw..?
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 03, 2018, 09:47:16 AM
I am ok with value-based investing. As long as you are broadly diversified, keeping costs low, minimizing turnover, and not selling at a loss you are OK. Naive performance-chasing, selling at a loss, and waiting in lower-yielding cash are the things that will screw you.

Even then you will probably underperform the market once you factor in your time at an hourly rate.

It's not that timely to be honest.. and all I am simply doing is providing some common sense to the markets...

It's quite ironic that the people are calling me a market timer see the ones heavily all in on US ....this implies that you are trying to beat the market anyhow lol.

US is just over half the market at the end of the day and at such high levels I think the chances are it will pay to look at the other 45%

This is why I like small caps globally as they seem to do well even in economic crisis
Why do you assume all US based people here are only investing domestically? I know many, including myself, have ~50/50 US/international. As the wold market cap suggests. Yes, only going US stocks is making a bet on the US, I don't think many would dispute that.

Just because Bogle is 100% US doesn't mean people here follow it (though some do). If he lost half, Bogle would still have more money then he needs, he can afford to not be diversified. Many of us here don't. And he's also an old-school American exeptionalist.

It's also fantastically rude to come here and insult long-term members, who are extremely helpful to many and frankly know more than you do. So, you made up your own definition of market timing (going in and out of individual stocks). And that's not what you do so you're not market timing. Ok, you've justified your actions to yourself. Good for you. Now move on, you don't need to (and can't) justify it to us.

In summary, you attack a version of market timing you made up. And you attack "investing 100% US", which I haven't seen anyone recommend? How many horses do you feed with all that straw..?

i specifically said that about people calling me a market timer... which is not about most "long term contributors" so get your bloody facts right before coming on with your own BS - thanks

and i havent seen any intelligence or evidence other than regarding the "stock picking" part of my conversations that relates to anyone having better knowledge frankly other than the "your a market timer"  so again speak facts before claiming to be insulted - and im not impressed by your arrogant know it all frankly know nothing attitude


"(going in and out of individual stocks)" please tell me where i said this is not market timing? again more made up stuff - i take it you havent read much of this thread and as a result anything that doesnt fall in the conventional wisdom on here you have naturally assumed incorrectly and are another "market timer" accuser 

based on incredibly poor misquoted and factually incorrect response i will naturally assume you know F-all in the field of investment
Title: Re: Why is active stock picking so taboo on here ?
Post by: boarder42 on April 03, 2018, 10:03:06 AM
if you dont like the answers you're getting here i'm sure there are other stock picking market timing forums out there to support your feelings.  Please report back when you've lost to the market.
Title: Re: Why is active stock picking so taboo on here ?
Post by: NoStacheOhio on April 03, 2018, 10:05:08 AM
Are you just trolling or what?

Why are you seeking external validation from a bunch of anonymous strangers? You claim to be exceedingly exceptional, having provided no evidence to support it.

If you're part of that 18%, then go buy some shit (stocks, sectors, whatever). Post your trades and net worth over time. Then we'll all tell you about the pleasant olfactory notes of your feces.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Scandium on April 03, 2018, 10:07:41 AM
I am ok with value-based investing. As long as you are broadly diversified, keeping costs low, minimizing turnover, and not selling at a loss you are OK. Naive performance-chasing, selling at a loss, and waiting in lower-yielding cash are the things that will screw you.

Even then you will probably underperform the market once you factor in your time at an hourly rate.

It's not that timely to be honest.. and all I am simply doing is providing some common sense to the markets...

It's quite ironic that the people are calling me a market timer see the ones heavily all in on US ....this implies that you are trying to beat the market anyhow lol.

US is just over half the market at the end of the day and at such high levels I think the chances are it will pay to look at the other 45%

This is why I like small caps globally as they seem to do well even in economic crisis
Why do you assume all US based people here are only investing domestically? I know many, including myself, have ~50/50 US/international. As the wold market cap suggests. Yes, only going US stocks is making a bet on the US, I don't think many would dispute that.

Just because Bogle is 100% US doesn't mean people here follow it (though some do). If he lost half, Bogle would still have more money then he needs, he can afford to not be diversified. Many of us here don't. And he's also an old-school American exeptionalist.

It's also fantastically rude to come here and insult long-term members, who are extremely helpful to many and frankly know more than you do. So, you made up your own definition of market timing (going in and out of individual stocks). And that's not what you do so you're not market timing. Ok, you've justified your actions to yourself. Good for you. Now move on, you don't need to (and can't) justify it to us.

In summary, you attack a version of market timing you made up. And you attack "investing 100% US", which I haven't seen anyone recommend? How many horses do you feed with all that straw..?

i specifically said that about people calling me a market timer... which is not about most "long term contributors" so get your bloody facts right before coming on with your own BS - thanks

and i havent seen any intelligence or evidence other than regarding the "stock picking" part of my conversations that relates to anyone having better knowledge frankly other than the "your a market timer"  so again speak facts before claiming to be insulted - and im not impressed by your arrogant know it all frankly know nothing attitude


"(going in and out of individual stocks)" please tell me where i said this is not market timing? again more made up stuff - i take it you havent read much of this thread and as a result anything that doesnt fall in the conventional wisdom on here you have naturally assumed incorrectly and are another "market timer" accuser 

based on incredibly poor misquoted and factually incorrect response i will naturally assume you know F-all in the field of investment

Wow :O. Did someone shit in your corn flakes, or is there another reason you seem to be having a really bad day?? Even in heated discussions here this kind of excessive dickbaggery is uncalled for. Keep it up and I hope you get banned as just another troll. You have insulted several long-term members (since they all call you a market timer..), is that really a disputed fact??

ps: to clear up the confusion: you claim "going in and out of stocks" is the only form of market timing, per your definition. Since you're just under-investing in the US instead you say you're not market timing. Everyone else here disagree with that.
Title: Re: Why is active stock picking so taboo on here ?
Post by: appleshampooid on April 03, 2018, 10:09:14 AM
Just playing devil's advocate. If you have an IPS that states a certain allocation per sector, and your portfolio is out of whack given current market valuations of US large cap, you would be following your IPS to avoid that asset class with new investments until the percentages come back to your target.
Title: Re: Why is active stock picking so taboo on here ?
Post by: OurTown on April 03, 2018, 10:14:03 AM
Just playing devil's advocate. If you have an IPS that states a certain allocation per sector, and your portfolio is out of whack given current market valuations of US large cap, you would be following your IPS to avoid that asset class with new investments until the percentages come back to your target.

Which is re-balancing rather than market timing.  As long as you don't fiddle with the numbers in order to time the market!  My domestic/international ratio is 2:1, not because I think that has any objective significance, but rather because the math is easy to calculate and I am not tempted to play games based on what I think is going to happen.
Title: Re: Why is active stock picking so taboo on here ?
Post by: caracarn on April 03, 2018, 10:18:46 AM
(https://media.giphy.com/media/tFK8urY6XHj2w/giphy.gif)
Title: Re: Why is active stock picking so taboo on here ?
Post by: Telecaster on April 03, 2018, 10:59:49 AM
Asset allocation is a completely different question than stock picking. I can see where you're coming from Jamese20. It all makes sense now but you've got to bear in mind your audience. I'm assuming 90% of people on these boards are from the US/Canada. They are extremely likely to have the vast majority of their stock portfolio in the US market. I would if I was a US citizen living there. That's why VTSAX is quoted so much on here. In the US its not marketed as a US fund but a total stock market fund. We think of a total stock market fund as something that invests globally. You may have had more success on the UK board if you had an allocation question.

So for US people they don't really care about any thoughts of the US being overvalued. That for them is market timing. They will just keep buying regularly and be quite happy being primarily in their home market. I'm assuming most US people are at least 80% invested in the US. Please any US people jump in here if I'm talking nonsense there.

If you are not talking about dancing in and out of the market and you are wanting to invest in index funds then I can see where you're coming from, but from a UK perspective. We are not likely to invest 90% of our portfolio in the FTSE100 as a US person may in their total stock market fund. We are also not going to be 90% in the US either. Most Vanguard global trackers here in the UK will have 50-60% allocated to the US. If you think that's too high then that's fine. Most global funds won't suit you. I think you have a couple of options:

1. Vanguard LifeStrategy 100 is approx 40% in the US
2. You use separate UK, Europe, US, Japan, Asia-Pacific, Emerging markets and Bond tracker funds to allocate exactly what you want to each geographical area.

However option 2 takes more effort to manage and you lose some of the simplicity with regards to rebalancing of a global tracker. You then also have the issue of when do you decide one of the regions is now undervalued and which is overvalued in order to rebalance appropriately. Also why do you think you know better than Vanguard do in how they have allocated their LifeStrategy fund for example?

Excellent points.  There are two parallel conversations going on, one of which is about portfolio construction.   And if you look at Bogleheads or wherever, there are tons of different example portfolios.   Which is to say, there is no consensus on a single-best portfolio.  Certainly, a non-US person would approach portfolio construction differently that a US person.   On various threads here at MMM, you might (or might not) get a bit of push back if you suggested say, international stocks, but only a bit.  Because after all, most big US companies have operations overseas, so there is some international exposure that way.  But others might say Europe stocks aren't correlated well with US stocks, so there's a benefit in that regard. 

Similarly, lots of people here like the simplicity of owning just VTSAX (and maybe some bonds).  However, that's a large cap strategy, and backtesting shows a blend of large and small caps increases returns )but also increases volatility).   So, I don't think the conversation should end at 100% VTSAX.  But some disagree.  Point is, there are lots of logical ways to construct a portfolio. 

However (and this is the other part of the conversation)  IMO it is not logical or valid to construct a portfolio based on current P/E ratio.  As I mentioned above, P/E is at best weak predictor of future returns, and P/Es can be wacky in either direction for very long periods of time.  And lets say that OP is correct, and US markets tank relative to the rest of the world.  Then what do you do?  Look at P/Es again and adjust?   How often do you do that?   And what are the thresholds for adjustment?  And are the adjustments time-based (say, yearly), or value based, dependent on P/Es?  And final question:  Do we know that this type P/E-based construction even works?   You can see there is a lot to this, and I can see lots of ways to blow your fingers off. 

If there is one immutable rule of investing it is that the less you fiddle with your portfolio, the better your returns.  Trying to pick winning markets ahead of time will require lots of fiddling.  Caveat investor.

Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 03, 2018, 11:08:57 AM
On various threads here at MMM, you might (or might not) get a bit of push back if you suggested say, international stocks, but only a bit.  Because after all, most big US companies have operations overseas, so there is some international exposure that way. 



Whenever someone thinks along these lines "US companies do business overseas, so thats international!", I point them to this excellent post by who I consider the most prolific contributor on the forum:

https://forum.mrmoneymustache.com/investor-alley/statistics-personal-experience-and-risk-management/msg629210/#msg629210
Title: Re: Why is active stock picking so taboo on here ?
Post by: Jamese20 on April 03, 2018, 11:15:45 AM
Asset allocation is a completely different question than stock picking. I can see where you're coming from Jamese20. It all makes sense now but you've got to bear in mind your audience. I'm assuming 90% of people on these boards are from the US/Canada. They are extremely likely to have the vast majority of their stock portfolio in the US market. I would if I was a US citizen living there. That's why VTSAX is quoted so much on here. In the US its not marketed as a US fund but a total stock market fund. We think of a total stock market fund as something that invests globally. You may have had more success on the UK board if you had an allocation question.

So for US people they don't really care about any thoughts of the US being overvalued. That for them is market timing. They will just keep buying regularly and be quite happy being primarily in their home market. I'm assuming most US people are at least 80% invested in the US. Please any US people jump in here if I'm talking nonsense there.

If you are not talking about dancing in and out of the market and you are wanting to invest in index funds then I can see where you're coming from, but from a UK perspective. We are not likely to invest 90% of our portfolio in the FTSE100 as a US person may in their total stock market fund. We are also not going to be 90% in the US either. Most Vanguard global trackers here in the UK will have 50-60% allocated to the US. If you think that's too high then that's fine. Most global funds won't suit you. I think you have a couple of options:

1. Vanguard LifeStrategy 100 is approx 40% in the US
2. You use separate UK, Europe, US, Japan, Asia-Pacific, Emerging markets and Bond tracker funds to allocate exactly what you want to each geographical area.

However option 2 takes more effort to manage and you lose some of the simplicity with regards to rebalancing of a global tracker. You then also have the issue of when do you decide one of the regions is now undervalued and which is overvalued in order to rebalance appropriately. Also why do you think you know better than Vanguard do in how they have allocated their LifeStrategy fund for example?

Excellent points.  There are two parallel conversations going on, one of which is about portfolio construction.   And if you look at Bogleheads or wherever, there are tons of different example portfolios.   Which is to say, there is no consensus on a single-best portfolio.  Certainly, a non-US person would approach portfolio construction differently that a US person.   On various threads here at MMM, you might (or might not) get a bit of push back if you suggested say, international stocks, but only a bit.  Because after all, most big US companies have operations overseas, so there is some international exposure that way.  But others might say Europe stocks aren't correlated well with US stocks, so there's a benefit in that regard. 

Similarly, lots of people here like the simplicity of owning just VTSAX (and maybe some bonds).  However, that's a large cap strategy, and backtesting shows a blend of large and small caps increases returns )but also increases volatility).   So, I don't think the conversation should end at 100% VTSAX.  But some disagree.  Point is, there are lots of logical ways to construct a portfolio. 

However (and this is the other part of the conversation)  IMO it is not logical or valid to construct a portfolio based on current P/E ratio.  As I mentioned above, P/E is at best weak predictor of future returns, and P/Es can be wacky in either direction for very long periods of time.  And lets say that OP is correct, and US markets tank relative to the rest of the world.  Then what do you do?  Look at P/Es again and adjust?   How often do you do that?   And what are the thresholds for adjustment?  And are the adjustments time-based (say, yearly), or value based, dependent on P/Es?  And final question:  Do we know that this type P/E-based construction even works?   You can see there is a lot to this, and I can see lots of ways to blow your fingers off. 

If there is one immutable rule of investing it is that the less you fiddle with your portfolio, the better your returns.  Trying to pick winning markets ahead of time will require lots of fiddling.  Caveat investor.

thanks for a sensible answer and response it is much appreciated - its not just based on P/e - but when you look at extremes in either case it normally shows in the performance

im sorry but there are too many ignorant answers and high horse type responses to continue this for me now and wont be returning
Title: Re: Why is active stock picking so taboo on here ?
Post by: simonsez on April 03, 2018, 11:26:55 AM
Whenever someone thinks along these lines "US companies do business overseas, so thats international!", I point them to this excellent post by who I consider the most prolific contributor on the forum:

https://forum.mrmoneymustache.com/investor-alley/statistics-personal-experience-and-risk-management/msg629210/#msg629210
I thought ARS was the most prolific with over 27000 posts.  Dodge only has 790.  Very profound post though.  :-P

Seriously though, thanks for the link, good stuff.
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 03, 2018, 11:30:20 AM
Whenever someone thinks along these lines "US companies do business overseas, so thats international!", I point them to this excellent post by who I consider the most prolific contributor on the forum:

https://forum.mrmoneymustache.com/investor-alley/statistics-personal-experience-and-risk-management/msg629210/#msg629210
I thought ARS was the most prolific with over 27000 posts.  Dodge only has 790.  Very profound post though.  :-P

Seriously though, thanks for the link, good stuff.

Oh I wasn't basing it on volume, just quality.

But ARS has very high quality posts, love his stuff too.  He also introduced me to the game Avalon, so he gets points for that too hahah.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Scandium on April 03, 2018, 11:36:32 AM

im sorry but there are too many ignorant answers and high horse type responses to continue this for me now and wont be returning

ignorant answers = "people who don't agree with me (and dispute my nonsense with facts)"

Thanks for leaving. You won't be missed.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Goldielocks on April 03, 2018, 12:13:12 PM
I am ok with value-based investing. As long as you are broadly diversified, keeping costs low, minimizing turnover, and not selling at a loss you are OK. Naive performance-chasing, selling at a loss, and waiting in lower-yielding cash are the things that will screw you.

Even then you will probably underperform the market once you factor in your time at an hourly rate.


US is just over half the market at the end of the day and at such high levels I think the chances are it will pay to look at the other 45%

As a non-american, I have some perspective to talk on this point, I think.

The US may be only half the world market, but many, many of its large companies get revenues (often most of their revenues) from international sales.   Therefore, an investment in the US funds IS a much larger reflection of the world markets than it appears.

I agree that US does not reflect small cap international opportunities proportionally.... I personally have 30% US and 30% international which I think is better diversity of up and coming and strong international leaders... but I had to look closely at the US company exposure to the international sales to evaluate it.

Top 15 on the Fortune 50:

1. Walmart Stores
Double in revenues of the next largest.  25% of sales are international

2. Berkshire Hathaway

3. Apple:  USA is only about 1/3 of total sales revenues

4. ExxonMobile -- USA is only 20% (?) of total operations / sales

5. McKesson -- even McKesson gets 25% of its revenue from international..

6. UnitedHealth Group

7. CVS Health

8. General Motors

9. AT&T

10. Ford Motor

11. AmerisourceBergen

12. Amazon.com

13. General Electric

14. Verizon Communications

15. Cardinal Health
Title: Re: Why is active stock picking so taboo on here ?
Post by: HBFIRE on April 03, 2018, 12:16:49 PM


The US may be only half the world market, but many, many of its large companies get revenues (often most of their revenues) from international sales.   Therefore, an investment in the US funds IS a much larger reflection of the world markets than it appears.



The numbers have already included revenues overseas when calculating total US market share and market cap
Title: Re: Why is active stock picking so taboo on here ?
Post by: Goldielocks on April 03, 2018, 01:56:51 PM


The US may be only half the world market, but many, many of its large companies get revenues (often most of their revenues) from international sales.   Therefore, an investment in the US funds IS a much larger reflection of the world markets than it appears.



The numbers have already included revenues overseas when calculating total US market share and market cap

Sorry, I missed your post upthread -- which numbers / index /calculations already adjust for total us market share?

Also,  note that even though I agree that the US Market exposure DOES mean you get some international exposure, I still only have 30% US in my allocation.
Title: Re: Why is active stock picking so taboo on here ?
Post by: Scandium on April 03, 2018, 02:06:33 PM


The US may be only half the world market, but many, many of its large companies get revenues (often most of their revenues) from international sales.   Therefore, an investment in the US funds IS a much larger reflection of the world markets than it appears.



The numbers have already included revenues overseas when calculating total US market share and market cap

Sorry, I missed your post upthread -- which numbers / index /calculations already adjust for total us market share?

Also,  note that even though I agree that the US Market exposure DOES mean you get some international exposure, I still only have 30% US in my allocation.

As is often pointed out this works the other way too. Samsung sells a lot to the US, so does that mean i don't need to own US stocks if I own Samsung? Or Toyota, Nestle and others?
Title: Re: Why is active stock picking so taboo on here ?
Post by: Goldielocks on April 03, 2018, 02:36:30 PM
I think the "don't worry about international exposure" is more for the one fund "set it and forget it" investor approach, especially for those with zero interest in re-balancing each year and want only one fund and maybe one bond fund or bond ladder.   

Because US has a significant exposure to international, it is not like you are wholly out of the market.

You are right that international holds US holdings, too.
 Samsung, Nestle are two international companies with very strong US prescence that I end up with quite a bit of in my international holdings, Samsung is about 25% US sales; Nestle USA is around 28% of sales revenue.

For the person wanting a single income fund -- if they were in Canada, I would recommend an international fund, perhaps EAFE or other world index.

If they were in the USA, I would recommend a USA based equity fund first, if you only want one fund. 
The key reason is that you want a sizable portion of your retirement invested in the dollar currency that you will retire in.  Canada's market is too small to ignore international stocks, but the USA is not.