Author Topic: Year to date investment returns  (Read 31020 times)

KBecks2

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Re: Year to date investment returns
« Reply #50 on: July 09, 2015, 10:39:05 AM »
I did share in March and I'm planning to review my port quarterly.  I don't think I was embarrassed for sharing the information.  I do remember that people took some swipes at this "you're just a lucky monkey" kind of talk.   The real estate investors are usually happy with their successful work and I'm happy with mine too.   It's a great hobby to work at becoming a better investor.

Aphalite

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Re: Year to date investment returns
« Reply #51 on: July 09, 2015, 10:41:47 AM »
I like Disney and Visa a lot (buying a ton of Disney - Visa a little too pricey for my tastes). Both have a lot of headway to grow, especially internationally. Apple I don't have an opinion because I'm not sure one way or the other if they will continue to sell phones at the rate that they are. Facebook is extremely overvalued and you'd need everything to go right with that company to not take a capital loss. I think it's an example of investing based on optimism and hope. Wells is capped out and won't return more than 8-10% in the future, but I think they are very safe despite being in financial services. I am not too familiar with the economics of the others

milesdividendmd

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Re: Year to date investment returns
« Reply #52 on: July 09, 2015, 10:58:05 AM »
mefla, what did you decide re: the mortgage?  We are paying our mortgage down and I go back and forth between throwing extra cash at pay down or investments.  In the end, we'll do a little bit of both things.  If we get a good dip soon, this month's check will go to the brokerage instead of the mortgage.

My active stocks are --
Apple, Amtrust Financial, Walt Disney, Starbucks, Skyworks, Facebook, American Tower, Wells Fargo, Bank of the Internet, Skechers, Ambarella, Gilead, Papa John's, Snap On, Seaspan, Medtronic, Visa, Paraxel and Nokia. 

I'd like to narrow it down and focus it a bit more so I can be very attentive to each company.  I listen to a few sources, Motley Fool Pro, Saul @ the free boards at Motley Fool and Jim Cramer's podcast.   My annual fees for advice are just under $1,000 and my port is big enough it can gain or lose more than $1k in nearly any day of trading, so the fees are not killing me and I enjoy being part of the investing community, and especially getting some hand holding when I'm nervous or have questions.  Many of the stocks I own are covered by analysts from the service so I have help in selecting and monitoring the companies and that gives me great peace of mind.

I have my own particular investing style, and will certainly not throw stones at your decision to pick individulal stocks.

The only point I would make is that the fact that you portfolio goes up and down >1000$ in a day is completely irrelevant to the $1000 you pay per year for advice.  To be intellectually honest just include that 1000 in your trading expenses to determine your own ER for your approach.  Regardless of your approach expenses are return killers for everyone.
« Last Edit: July 09, 2015, 11:17:34 AM by milesdividendmd »

Aphalite

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Re: Year to date investment returns
« Reply #53 on: July 09, 2015, 11:13:42 AM »
Second Miles sentiments. Think of it this way. Your stock picks needs to generate enough return to offset that $1000 that index investors wouldnt pay.

spatula912

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Re: Year to date investment returns
« Reply #54 on: July 09, 2015, 01:08:11 PM »
Including distributions, around +2.5%.  Took a major beating in June.  The latest round of Greek drama sure is adding to volatility.

+1  mostly invested in VTSAX

KBecks2

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Re: Year to date investment returns
« Reply #55 on: July 09, 2015, 01:23:00 PM »
Second Miles sentiments. Think of it this way. Your stock picks needs to generate enough return to offset that $1000 that index investors wouldnt pay.

My port is over $300k so the expense is .3%.  It's very little.  It is not a return killer.

forummm

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Re: Year to date investment returns
« Reply #56 on: July 09, 2015, 01:35:09 PM »
Second Miles sentiments. Think of it this way. Your stock picks needs to generate enough return to offset that $1000 that index investors wouldnt pay.

My port is over $300k so the expense is .3%.  It's very little.  It is not a return killer.

Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.

https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost

forummm

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Re: Year to date investment returns
« Reply #57 on: July 09, 2015, 01:39:22 PM »
Also, if you are actively buying and selling in a taxable account you need to figure in the drag of capital gains taxes. It can be a huge return killer over time. It's one reason Warren Buffett almost never sells anything.

Aphalite

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Re: Year to date investment returns
« Reply #58 on: July 09, 2015, 01:42:33 PM »
Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.

That's a terrible analysis, multiplying $1000 by 50 years is $50k, you can argue they will raise the subscription fees, but KBecks can just unsubscribe, and she would still be holding all of her stocks without any expenses (she has a 300k portfolio, her trading costs should be close to zero or she should be negotiating a better deal with her broker), I hardly think you will be paying 5 million over 50 years, or an average of $100k per year

I agree with your point on capital gain tax

waltworks

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Re: Year to date investment returns
« Reply #59 on: July 09, 2015, 01:44:05 PM »
Oh, crap - you are doing this with only a $300k portfolio?!?

Even if I thought I could beat the market, no way would I bother with that small of an amount. I can just do regular work and make a way better return on my time/effort.

-W

waltworks

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Re: Year to date investment returns
« Reply #60 on: July 09, 2015, 01:47:28 PM »
It is a question of exponents. Go sit down and run your 6% vs 5.65% for $300k over 50 years and see what you get - it's going to result in portfolio ending values of ~$5.5 million vs ~$4.7 million. So $800,000 lost to fees, not $50k.

-W

That's a terrible analysis, multiplying $1000 by 50 years is $50k, you can argue they will raise the subscription fees, but KBecks can just unsubscribe, and she would still be holding all of her stocks without any expenses (she has a 300k portfolio, her trading costs should be close to zero or she should be negotiating a better deal with her broker), I hardly think you will be paying 5 million over 50 years, or an average of $100k per year

I agree with your point on capital gain tax

Terrestrial

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Re: Year to date investment returns
« Reply #61 on: July 09, 2015, 01:49:28 PM »

My active stocks are --
Apple, Amtrust Financial, Walt Disney, Starbucks, Skyworks, Facebook, American Tower, Wells Fargo, Bank of the Internet, Skechers, Ambarella, Gilead, Papa John's, Snap On, Seaspan, Medtronic, Visa, Paraxel and Nokia. 


Some good choices there that i also have in my portfolio or have had in the recent past.  AAPL, SWKS, SBUX and V have been in my portfolio as core holdings for years and were among the main stuff I bought coming out of the recession when the market was recovering...all have done great and are at least double-ups, 3 of them are multi-baggers.  Was really close to pulling the trigger on DIS a while back and my order just didn't hit, wish it had.  GILD I rode for a couple years and finally ended up closing it out during the run up earlier this year...I didn't have any clarity on how the sovaldi/harvoni competitor pricing war would end up shaking out so i took my gains.   

Dont know much about some of those on the list but will do some research in my free time for things to pick up while the market takes it's greece and china peasant pounding.

The only one on that list that i have looked at and decided not to buy in the past was FB.  I was intrigued enough to consider it but i just couldn't pay that steep a valuation.   Alot of things have to go right for it to grow into that, and i've never been a fan of buying something hoping for a few years of perfect growth without hiccups for the value to make sense, or alternately trusting there will be someone stupider than me to pay an even larger premuim and bail me out (though who knows the 'stupider person' theory works out well for all those AMZN investors haha).   I'm not saying it wont, I have no idea...just that i personally decided the juice wasn't worth the squeeze.  I would be lying if i said i didn't wish i had bought it when it plummeted to the 20's after it's IPO though.
« Last Edit: July 09, 2015, 02:06:25 PM by Terrestrial »

Aphalite

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Re: Year to date investment returns
« Reply #62 on: July 09, 2015, 01:54:35 PM »
It is a question of exponents. Go sit down and run your 6% vs 5.65% for $300k over 50 years and see what you get - it's going to result in portfolio ending values of ~$5.5 million vs ~$4.7 million. So $800,000 lost to fees, not $50k.

-W

It's not .3% of her portfolio every year, it's .3% TODAY. Next year it's a smaller percentage. The next year even smaller.
The formula is (Prior period)*(1.06)-1000

Taking that to 50 years, with no 1000 per year fee, it's $5.21m, with the fee, it's $4.94m. For total cost of $272k

A fund with 5 bps expense (5.95% return) would result in a lower portfolio of $4.8m

milesdividendmd

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Re: Year to date investment returns
« Reply #63 on: July 09, 2015, 02:01:28 PM »
It is a question of exponents. Go sit down and run your 6% vs 5.65% for $300k over 50 years and see what you get - it's going to result in portfolio ending values of ~$5.5 million vs ~$4.7 million. So $800,000 lost to fees, not $50k.

-W


[/quote]


I agree that you have to account for the compounding effect, but it is not as simple as subtracting an expense ratio of 0.35% per year.  After all as the portfolio grows, the cost of advice diminishes as a percentage of total assets.

And don't forget the costs of trading.  Even using a fee free brokerage like robinhood you must account for the friction of bid ask spreads, in addition to the capital gains cost...

Rollin

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Re: Year to date investment returns
« Reply #64 on: July 09, 2015, 02:03:27 PM »
2% return YTD yesterday, .9% today.  Hmmmm....

waltworks

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Re: Year to date investment returns
« Reply #65 on: July 09, 2015, 02:05:48 PM »
Oh, gotcha. I thought we were talking a percentage ER.

Miles, good point on the trading and cap gains costs. I wasn't trying to account for any of that but I'm sure when you add it all up it ends up being a pretty huge amount of drag. Not to mention all the extra work at tax time.

I wonder how much, as a sort of round number, you'd need to beat the market by to make up for active trading costs. I guess it's probably so different in every case (ie day trader vs. buy/hold for longer periods, income low enough to be exempt from cap gains vs not, etc) that it's not possible to come up with a generic number that means much, though.

-W

It is a question of exponents. Go sit down and run your 6% vs 5.65% for $300k over 50 years and see what you get - it's going to result in portfolio ending values of ~$5.5 million vs ~$4.7 million. So $800,000 lost to fees, not $50k.

-W

It's not .3% of her portfolio every year, it's .3% TODAY. Next year it's a smaller percentage. The next year even smaller.
The formula is (Prior period)*(1.06)-1000

Taking that to 50 years, with no 1000 per year fee, it's $5.21m, with the fee, it's $4.94m. For total cost of $272k

A fund with 5 bps expense (5.95% return) would result in a lower portfolio of $4.8m

forummm

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Re: Year to date investment returns
« Reply #66 on: July 09, 2015, 02:55:40 PM »
Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.

That's a terrible analysis, multiplying $1000 by 50 years is $50k, you can argue they will raise the subscription fees, but KBecks can just unsubscribe, and she would still be holding all of her stocks without any expenses (she has a 300k portfolio, her trading costs should be close to zero or she should be negotiating a better deal with her broker), I hardly think you will be paying 5 million over 50 years, or an average of $100k per year

I agree with your point on capital gain tax

I thought the disclaimer (which you quoted) in the very next sentence that this analysis is looking at a different situation would be enough to clarify that it wasn't the same thing OP was doing. I just wanted to point out that small numbers matter over a long time. Who knows what OP will be doing later. Right now that's what it's costing this year. Maybe OP buys a managed fund with that ER because it's "so small".
« Last Edit: July 09, 2015, 02:57:19 PM by forummm »

KBecks2

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Re: Year to date investment returns
« Reply #67 on: July 09, 2015, 03:11:37 PM »
Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.

But… I'm making more than a fixed 6% return.  The upside covers the expense.   All I have to do is beat the market by more than 0.33% and I'm ahead.   My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period.  That is the goal of the service I work with.  I'm currently more aggressive than that service is.

« Last Edit: July 09, 2015, 03:13:40 PM by KBecks2 »

KBecks2

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Re: Year to date investment returns
« Reply #68 on: July 09, 2015, 03:15:25 PM »
Oh, crap - you are doing this with only a $300k portfolio?!?

Even if I thought I could beat the market, no way would I bother with that small of an amount. I can just do regular work and make a way better return on my time/effort.
-W

I don't know where to begin with this!  I hope you like your job!
And, small amounts turn into larger amounts….   
« Last Edit: July 09, 2015, 03:17:55 PM by KBecks2 »

milesdividendmd

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Re: Year to date investment returns
« Reply #69 on: July 09, 2015, 03:26:08 PM »
Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.

But… I'm making more than a fixed 6% return.  The upside covers the expense.   All I have to do is beat the market by more than 0.33% and I'm ahead.   My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period.  That is the goal of the service I work with.  I'm currently more aggressive than that service is.

More aggressive equals more risk.  More risk = more downside.  More downside = higher percentage cost of  your expense ratio following large drawdowns.  More importantly it means a higher risk of blowing up and falling out of the compounding game altogether.

You may beat the market, you may not.  The smart money is that you will not since 80% of active investers don't.

But your expenses, they are locked in no matter what.

waltworks

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Re: Year to date investment returns
« Reply #70 on: July 09, 2015, 03:44:46 PM »
Let me rephrase:

Say I make about $100 an hour at my normal job. I'd assume anyone sophisticated and wealthy/educated enough to be actively trading can find a job that pays around that much.

Let's say managing/researching/trading/doing taxes on my $300k in assets takes me only 5 hours a week. I think that's probably too low if you want to be beating the market (setting aside the question of whether that's even possible through anything but luck), but we're being conservative here. Call it 250 hours a year.

Assume no fees of any kind on the trading, just to make it easy.

That means the time/effort invested is worth something like $25k. So my returns on the $300k portfolio need to be on the order of 8-9% better to make it worthwhile. Even at $50/hour you need to be consistently beating the market by 4-5%. Not making $50 an hour? WTF are you doing trying to trade stocks and beat people much smarter than you who dedicate their lives to it?

As the portfolio size grows, or your pay level drops, obviously the ratio can work out more in your favor. But if I had only $300k in investments, I would certainly not be actively managing them rather than just taking on more normal work.  Not every job is scalable, of course, but it's still worth looking at your time/effort in investing as work, because that is what it is.

-W
« Last Edit: July 09, 2015, 05:46:03 PM by waltworks »

KBecks2

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Re: Year to date investment returns
« Reply #71 on: July 09, 2015, 03:48:32 PM »
I work part time doing a job I love with low pay.  I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio.  My life is great! 

ender

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Re: Year to date investment returns
« Reply #72 on: July 09, 2015, 04:11:54 PM »
I'm not sure, it's down since we started our TIRAs though (makes it easy to check: less than $5500 each? down. more than? up!)

Retire-Canada

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Re: Year to date investment returns
« Reply #73 on: July 09, 2015, 04:40:08 PM »
I work part time doing a job I love with low pay.  I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio.  My life is great!

How long have you been following this advice?

waltworks

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Re: Year to date investment returns
« Reply #74 on: July 09, 2015, 05:08:08 PM »
Meh, lost cause. It'll probably end it tears in a few years but we'll never hear about it. C'est la internet.

It is a great testament to how the professional money-managing industry stays in business, though.

-W

I work part time doing a job I love with low pay.  I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio.  My life is great!

How long have you been following this advice?
« Last Edit: July 09, 2015, 05:11:07 PM by waltworks »

KBecks2

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Re: Year to date investment returns
« Reply #75 on: July 09, 2015, 05:40:20 PM »
Meh, lost cause. It'll probably end it tears in a few years but we'll never hear about it. C'est la internet.

It is a great testament to how the professional money-managing industry stays in business, though.

-W


You're too rude to deal with.  C'est la internet. 

KBecks2

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Re: Year to date investment returns
« Reply #76 on: July 09, 2015, 05:46:23 PM »

How long have you been following this advice?

Two years, I know it's short.  I have been investing since 1999 and have experienced the pain of the dot com crash, and I have used index funds for years --  I have no problems with index funds, I like them.  I just want to take time to learn more about individual stock investing.  Hopefully it helps keep my brain active in retirement. :)   I hang with a great group of people in the investor community that I belong to and it's a lot of fun. 

waltworks

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Re: Year to date investment returns
« Reply #77 on: July 09, 2015, 05:53:49 PM »
I'm not trying to upset you, but beginners read these threads, and I want to make it very clear to them that what you are doing is a very bad idea. There is no personal animus, in fact I hope you do great. I just don't want new folks to read this thread and go run off to start day trading.

-W

dungoofed

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Re: Year to date investment returns
« Reply #78 on: July 09, 2015, 05:59:07 PM »
KBecks - Sounds like you've got it worked out (and I mean that honestly, not sarcastically). Work/life balance, doing what you want etc. Congratulations.

Waltworks - KBecks has a journal with portfolio updates. Let's check it again when the market is next tanking.

forummm

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Re: Year to date investment returns
« Reply #79 on: July 09, 2015, 06:24:37 PM »
Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.

But… I'm making more than a fixed 6% return.  The upside covers the expense.   All I have to do is beat the market by more than 0.33% and I'm ahead.   My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period.  That is the goal of the service I work with.  I'm currently more aggressive than that service is.



You've been doing this for 2 years. And the market has boomed during those 2 years. Everyone has been making lots of money--without paying $1000 for advice.

You and your advisory service can set whatever goal you like. It's just a goal. No one can guarantee you'll make it. I have a goal to be a trillionaire. Hasn't worked out for me though so far.

And that goal isn't really that ambitious. The S&P500 has provided 7%+inflation compounded returns over the last 65 years.

KMMK

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Re: Year to date investment returns
« Reply #80 on: July 09, 2015, 06:41:30 PM »
About 7%, Canadian, Couch Potato type portfolio.

KBecks2

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Re: Year to date investment returns
« Reply #81 on: July 09, 2015, 07:59:18 PM »
Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.

But… I'm making more than a fixed 6% return.  The upside covers the expense.   All I have to do is beat the market by more than 0.33% and I'm ahead.   My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period.  That is the goal of the service I work with.  I'm currently more aggressive than that service is.



You've been doing this for 2 years. And the market has boomed during those 2 years. Everyone has been making lots of money--without paying $1000 for advice.

You and your advisory service can set whatever goal you like. It's just a goal. No one can guarantee you'll make it. I have a goal to be a trillionaire. Hasn't worked out for me though so far.

And that goal isn't really that ambitious. The S&P500 has provided 7%+inflation compounded returns over the last 65 years.

You're trying to face punch me but I didn't come in here asking if what I'm doing is ok.  It's my money and I'm happy.  I'm sharing quarterly results, that's all. No big deal.

a1smith

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Re: Year to date investment returns
« Reply #82 on: July 09, 2015, 08:29:25 PM »
I work part time doing a job I love with low pay.  I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio.  My life is great!

Jim Cramer, a stock picking expert?  :-D

mrpercentage

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Re: Year to date investment returns
« Reply #83 on: July 09, 2015, 09:10:35 PM »
I don't know about paying for service. Im too cheap. Jim Cramer and Seeking Alpha free version for me. I pretty much make my own picks though.
These are my total holdings and total returns YTD, take from it what you may. They change daily with all the crap going on. Some of the losers were pretty good winners a month ago.

Apple -6.8%
Boeing +0.29%
Disney +16.98%
Escalade Sports +14.28%
Ford -8.26%
JP Morgan +1.66%
Navios Marine -8%
Platform Specialty -9.15%

Im heaviest in Disney and not selling anything

KBecks2

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Re: Year to date investment returns
« Reply #84 on: July 10, 2015, 05:51:59 AM »
I work part time doing a job I love with low pay.  I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio.  My life is great!

Jim Cramer, a stock picking expert?  :-D

The paid service I use is Motley Fool Pro, which has a conservative style.  I listen to Cramer's free podcast almost every day. 
Businesses are fascinating and it's very interesting to learn about what companies are doing. 


KBecks2

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Re: Year to date investment returns
« Reply #85 on: July 10, 2015, 05:58:15 AM »
I don't know about paying for service. Im too cheap. Jim Cramer and Seeking Alpha free version for me. I pretty much make my own picks though.
These are my total holdings and total returns YTD, take from it what you may. They change daily with all the crap going on. Some of the losers were pretty good winners a month ago.

Apple -6.8%
Boeing +0.29%
Disney +16.98%
Escalade Sports +14.28%
Ford -8.26%
JP Morgan +1.66%
Navios Marine -8%
Platform Specialty -9.15%

Im heaviest in Disney and not selling anything

Did you buy the stocks this year?  My records (which may not be perfect either) show...
AAPL up 9.82% YTD
DIS up 21.8% YTD

That's from taking the price on December 31 (or Jan 1) and comparing to todays prices.   Those are not *my* returns though, as my buy prices and times are from earlier dates.  My rough returns on AAPL are 68%  and DIS 44%.   


forummm

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Re: Year to date investment returns
« Reply #86 on: July 10, 2015, 06:53:42 AM »
Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.

But… I'm making more than a fixed 6% return.  The upside covers the expense.   All I have to do is beat the market by more than 0.33% and I'm ahead.   My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period.  That is the goal of the service I work with.  I'm currently more aggressive than that service is.



You've been doing this for 2 years. And the market has boomed during those 2 years. Everyone has been making lots of money--without paying $1000 for advice.

You and your advisory service can set whatever goal you like. It's just a goal. No one can guarantee you'll make it. I have a goal to be a trillionaire. Hasn't worked out for me though so far.

And that goal isn't really that ambitious. The S&P500 has provided 7%+inflation compounded returns over the last 65 years.

You're trying to face punch me but I didn't come in here asking if what I'm doing is ok.  It's my money and I'm happy.  I'm sharing quarterly results, that's all. No big deal.

No facepunching happening. Just words of caution intended to help you think about what you're doing in another way. It's very easy to want to believe that an "expert" can give you special advice that will help you get rich--that's a very appealing scenario. It can be easy to convince yourself that it's true, especially with some good marketing and self-promotion from the person who's convincing you to give them a lot of money for their advice.

It's almost a certainty that this person's advice will result in down years for you. Just like any other stock investing. Even Buffett loses money sometimes. Studies show that paying fees for active investing generally results in worse overall performance than if you just did low-fee indexing. This is just some guy on the Internet that I've never heard of. He could be the next Buffett. But that's very unlikely.

It's your money. Do what you want to. Just be aware of the risks you are taking. Only trying to help you be aware.

Terrestrial

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Re: Year to date investment returns
« Reply #87 on: July 10, 2015, 09:53:56 AM »
Let me rephrase:

Say I make about $100 an hour at my normal job. I'd assume anyone sophisticated and wealthy/educated enough to be actively trading can find a job that pays around that much.

Let's say managing/researching/trading/doing taxes on my $300k in assets takes me only 5 hours a week. I think that's probably too low if you want to be beating the market (setting aside the question of whether that's even possible through anything but luck), but we're being conservative here. Call it 250 hours a year.

Assume no fees of any kind on the trading, just to make it easy.

That means the time/effort invested is worth something like $25k. So my returns on the $300k portfolio need to be on the order of 8-9% better to make it worthwhile. Even at $50/hour you need to be consistently beating the market by 4-5%. Not making $50 an hour? WTF are you doing trying to trade stocks and beat people much smarter than you who dedicate their lives to it?

As the portfolio size grows, or your pay level drops, obviously the ratio can work out more in your favor. But if I had only $300k in investments, I would certainly not be actively managing them rather than just taking on more normal work.  Not every job is scalable, of course, but it's still worth looking at your time/effort in investing as work, because that is what it is.

-W

1 - Seriously...$100 an hour wages just fall out of the sky for anybody who is educated and knows about investments?  I live in a mid level COLA town and personally know very few people who make over 200k a year (not household, just individuals) no matter their level of 'sophistication' or education.  Less than 2% of the people in my town likely make that much money from a 'job', i.e. not from owning a business or such, and most of them are probably specialized professionals that needed specific education to get said job.

2 - The problem with this kind of assumption is that it assumes that you CAN just work more hours for more pay whenever you want...and the problem with assuming this at your $100 rate is that there are even fewer jobs where you get paid that much and are not salaried.  I make a little over half that and am on salary, working more just means i work more and maybe my bonus will be better, not that i keep racking up $60 an hour for however long i see fit into perpetuity.   Maybe if you're a doctor/high end shift work something or other/laywer, or you work on commissions, you work on 'hours' that you can collect at that high a rate.  Most managers and other professionals that make 6 figures are going to be salaried.

3 - If i wanted to work more hours for actual hourly pay i would have to get some other job than my main one, and obviously one that doesn't happen during 'conventional' hours since i am AT my main job.  haven't heard of a ton of those where you make $100 (or even $50) an hour or else more people would probably be doing them.  The best i think you can reasonably hope for might be 15-20.

So that said yes i would rather spend a few hours a week researching investments (something I enjoy) sipping a cocktail and lounging in my easy chair rather than some shitty job at 20 an hour on my nights or weekends.  I agree this doesn't 'guarantee' any kind of outsized returns but its worked out well enough for me....I have about 2/3 of my portfolio in funds and have individual stocks with the rest, and I generally hold positions for long stretches of time so it's really not that much work once you get it set up...you read a few hours of news a week about the companies you own, read the quarterlys when they come out, update a spreadsheet once in a while.




« Last Edit: July 10, 2015, 10:02:44 AM by Terrestrial »

waltworks

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Re: Year to date investment returns
« Reply #88 on: July 10, 2015, 10:22:04 AM »
Let us know how it's going in 5 or 10 or 20 years, then. Everyone on the planet thinks they're a genius right now, that's how bull markets work.

I will stand by my statement that if you can't pull $100/hour in a regular job you probably shouldn't be trying to beat the pros (ok, actually even if you can you shouldn't be) - because if you want to beat the market, you are quite literally competing with people who are smarter, more educated, and WAY more devoted to this (not to mention almost unlimited information resources and sometimes insider knowledge) than some random person who sips cocktails and reads the motley fool in his/her spare time after work. 

Do you think that amateurs with limited practice time and resources can compete with the best professionals in the world in any other fields? If so, which ones? I'd love to hear about it. You'd be laughed out of the room if you claimed you could beat pro athletes, trial lawyers, or chess players practicing for a few hours a week in your spare time - what makes stock picking different?

Remember, too - among the investing public, the DEAD PEOPLE do the best:
http://theconservativeincomeinvestor.com/2015/05/26/fidelitys-best-investors-are-dead/

-W

sol

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Re: Year to date investment returns
« Reply #89 on: July 10, 2015, 10:46:35 AM »
Do you think that amateurs with limited practice time and resources can compete with the best professionals in the world in any other fields? If so, which ones? I'd love to hear about it. You'd be laughed out of the room if you claimed you could beat pro athletes, trial lawyers, or chess players practicing for a few hours a week in your spare time - what makes stock picking different?

I have a theory on that one.

I think that what makes stock picking different from other fields is that people who sell advice to stock pickers have a financial interest in keeping the illusion alive.  Their entire business model is based on selling this lie.  No one profits from telling you that you could win the Superbowl.

But it's not a hard lie to disprove.  Every study ever done reports that stock pickers lose out to indexers.  And if data doesn't convince you, consider the logic of it.  If the motley fool could really outperform the market by so much, for so long, why wouldn't they be doing that and enjoying their status as richest people on earth?  What possible motivation could they have for selling financial advice instead of acting on financial advice?

Think it through, people.  They're charging you a fee so they're clearly not altruists.  If they want to make money, and they really believed in their own advice, they'd be trading it instead of selling it. 

Of course, one other alternative explanation is that they're pump and dumping, just like generations of stock advisors before them. 

Either way, it's a fascinating industry.  Like Hollywood, they're selling an illusion as entertainment.  Unlike Hollywood, they don't admit it.

beltim

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Re: Year to date investment returns
« Reply #90 on: July 10, 2015, 11:20:24 AM »
Say I make about $100 an hour at my normal job. I'd assume anyone sophisticated and wealthy/educated enough to be actively trading can find a job that pays around that much.

And if data doesn't convince you, consider the logic of it.  If the motley fool could really outperform the market by so much, for so long, why wouldn't they be doing that and enjoying their status as richest people on earth?  What possible motivation could they have for selling financial advice instead of acting on financial advice?

Think it through, people.  They're charging you a fee so they're clearly not altruists.  If they want to make money, and they really believed in their own advice, they'd be trading it instead of selling it. 

I think people should consider these two thoughts in concert.

Aphalite

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Re: Year to date investment returns
« Reply #91 on: July 10, 2015, 11:25:58 AM »
I think Terrestrial is arguing against the logic that you can't beat the index period, while Walt and Sol are saying - it's stupid to spend money for stock picking advice. I agree with both points of view. Consider that stock pickers don't all use the same strategy. Even on this board, there's talk of momentum investing, or trend following. Different bits of information also means different things to different investors. For example, some investors will outright reject any and all stocks in certain industries, or with a price/earning ratio of more than XXX, while others buy on story and management expectations, etc. Indexing just means you're taking the average opinion of all stock pickers, it's certainly less work, but if you have enough accounting and business evaluation knowledge, and you enjoy the act of learning about businesses, why would you index?

The link on dead investors doing best only shows that lack of activity is good. For any index strategies, your advantages are 1) low trading costs 2) diversification and 3) lack of turnover/taxes. This can be replicated using stock picking too. If your stock picking strategy involves only purchases, and not selling, it's the same thing. The only difference between stock picking and indexing is the amount of diversification. Indexing is agnostic as to price paid and which company to buy, but suppose I don't want to hold stocks that are trading at 100+ PE, or companies in the airline, steel, and ship building industries. Yes, I will lose out on years like 2014 when airline stock increased dramatically, but I will also avoid all of the other years when airlines continuously go bankrupt. Indexing means you're still buying those companies, but beacuse you're diversified well enough, the bankruptcies don't have as much of an effect.

My theory on why this board is so against the idea of stock picking is that people see the evidence on the entire population of indexers vs stock pickers, and automatically go to the first order conclusion that indexing is the only way and stock picking is a dumb idea and anyone who tries to do it is illogical. They don't think to the second order questions of WHY indexing works, and what indexing is, and how prices are set for the indexes, and what all of that wrapped up means for you if you decide to pick which companies to invest in rather than buying the entire market. It's a lazy way to think, and insulting to boot when you insinuate that there are better things to do than sit around and learn about companies when that's what some investors enjoy. Granted, I share your opinion on paying for stock advice and then blindly following, but that doesn't seem to be what Terrestrial is doing here, so why equate what he's doing with what KBecks is doing?

forummm

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Re: Year to date investment returns
« Reply #92 on: July 10, 2015, 11:49:33 AM »
The link on dead investors doing best only shows that lack of activity is good. For any index strategies, your advantages are 1) low trading costs 2) diversification and 3) lack of turnover/taxes. This can be replicated using stock picking too. If your stock picking strategy involves only purchases, and not selling, it's the same thing. The only difference between stock picking and indexing is the amount of diversification. Indexing is agnostic as to price paid and which company to buy, but suppose I don't want to hold stocks that are trading at 100+ PE, or companies in the airline, steel, and ship building industries. Yes, I will lose out on years like 2014 when airline stock increased dramatically, but I will also avoid all of the other years when airlines continuously go bankrupt. Indexing means you're still buying those companies, but beacuse you're diversified well enough, the bankruptcies don't have as much of an effect.

If you believe in the EMH, then inserting your judgment about which stocks to pick is saying you know better than the market, and know better to such an extent that you can spend extra money and time and still come out ahead of the market after taking into account those extra expenses. That's an audacious claim. And one that studies show is not likely to be correct.

And you're not just less diversified. You're also more likely to miss out on that one stock that no one expected to blow up, but it jumps 1000%.

waltworks

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Re: Year to date investment returns
« Reply #93 on: July 10, 2015, 12:00:41 PM »
Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well). They pay considerable trading/tax costs for this dubious opportunity. Over long periods of time, almost nobody beats the market. Full stop.

You can make the argument that you're a special snowflake like Buffet or Soros or whoever the cool stock picker of the week is, and I'm not going to argue that it's *impossible* to kick ass and take names against the whole world of other investors - but that's like walking to the rec center in downtown Chicago where 6'8" AAU kids are throwing down dunks and deciding you should play them for money. You *might* be crazy good, and they might underestimate you, and you could get lucky for a possession or two - but realistically, you're going to lose unless you have that same level of inborn talent, practice time, and drive. The hubris required to believe you will beat professionals at stock picking is amazing to me.

-W

Aphalite

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Re: Year to date investment returns
« Reply #94 on: July 10, 2015, 12:04:30 PM »
If you believe in the EMH, then inserting your judgment about which stocks to pick is saying you know better than the market, and know better to such an extent that you can spend extra money and time and still come out ahead of the market after taking into account those extra expenses. That's an audacious claim. And one that studies show is not likely to be correct.

And you're not just less diversified. You're also more likely to miss out on that one stock that no one expected to blow up, but it jumps 1000%.

I think EMH is a load of crap. The use of beta as a measure of risk is my biggest pet peeve. It's fine to want the stock market to fit into a neat little equation, but that's not how reality works

Any studies about indexing vs stock picking is comparing entire populations. There's no comprehensive research comparing indexing vs Graham investing, or momentum investing, etc. That data has day traders and investors driven by fear mixed in with all of the stock pickers, it's dishonest to use that to proxy the performance of any and all investor that doesn't index

Your last sentence is confusing to me. In a total market index, besides holding the little gems that could jump 1000%, you are also holding 1000 other "could be" gems that either go flat, go up 200%, go bankrupt, or any other result inbetween. You're not getting 1000% return, you're getting 1% because you're holding so little of it in the index.
« Last Edit: July 10, 2015, 12:14:37 PM by Aphalite »

Aphalite

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Re: Year to date investment returns
« Reply #95 on: July 10, 2015, 12:13:11 PM »
Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well). They pay considerable trading/tax costs for this dubious opportunity. Over long periods of time, almost nobody beats the market. Full stop.

You can make the argument that you're a special snowflake like Buffet or Soros or whoever the cool stock picker of the week is, and I'm not going to argue that it's *impossible* to kick ass and take names against the whole world of other investors - but that's like walking to the rec center in downtown Chicago where 6'8" AAU kids are throwing down dunks and deciding you should play them for money. You *might* be crazy good, and they might underestimate you, and you could get lucky for a possession or two - but realistically, you're going to lose unless you have that same level of inborn talent, practice time, and drive. The hubris required to believe you will beat professionals at stock picking is amazing to me.

-W

This is the argument that's brought up everytime we have a discussion on this board: indexers somehow automatically leap to the conclusion that non-indexing investors believe they're special snowflakes. The reason why I don't want to index is because of the rules of indexing. It's price and business agnostic, which means, in my opinion, that I'm overpaying for a lot of the companies currently on the market, and that I'm buying businesses that I want no part of. I don't care if netflix continues to climb 10% a day, I want no part of it. I also don't care if carnival cruise lines starts performing like crazy, they have to sink all of their free cash flow back into their ships and I will get no part of that cash. If I miss out on market returns in a year because airlines and start up technology firms are going crazy, GOOD. I want no part of the madness driving the NASDAQ exchange of 2000-2001 and China markets in the recent months.

You point about trading/tax costs I have already addressed, but I will repeat here: There's nothing about individual stock picking that says you have to rack up considerable trading and tax costs. In fact, if you subscribe to the buy and hold strategy, you have even LESS expenses than indexing!!! Five basis points on $1,000,000 portfolio is still $500 saved. To just disregard a strategy from the beginning WITHOUT READING WHAT THE AUTHOR IS SAYING (as you have done with Terrestrial) is just as arrogant as the general stock picker thinking he's a special snowflake, as you pointed out

beltim

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Re: Year to date investment returns
« Reply #96 on: July 10, 2015, 12:26:02 PM »
Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well).

This just isn't true.  There are plenty of studies that show a small percentage of individual investors beat the market, and that outperformance in one period is predictive of outperformance in the next period.  This percentage is small (10-20%), which is why the average person should be in index funds, but just because most people can't do it isn't a reason to lie and say that no one can beat the market.
Some examples:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364000
a review of many studies: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/behavior%20of%20individual%20investors.pdf

Terrestrial

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Re: Year to date investment returns
« Reply #97 on: July 10, 2015, 12:42:14 PM »
Let us know how it's going in 5 or 10 or 20 years, then. Everyone on the planet thinks they're a genius right now, that's how bull markets work.

I will stand by my statement that if you can't pull $100/hour in a regular job you probably shouldn't be trying to beat the pros (ok, actually even if you can you shouldn't be) - because if you want to beat the market, you are quite literally competing with people who are smarter, more educated, and WAY more devoted to this (not to mention almost unlimited information resources and sometimes insider knowledge) than some random person who sips cocktails and reads the motley fool in his/her spare time after work. 

Do you think that amateurs with limited practice time and resources can compete with the best professionals in the world in any other fields? If so, which ones? I'd love to hear about it. You'd be laughed out of the room if you claimed you could beat pro athletes, trial lawyers, or chess players practicing for a few hours a week in your spare time - what makes stock picking different?

Remember, too - among the investing public, the DEAD PEOPLE do the best:
http://theconservativeincomeinvestor.com/2015/05/26/fidelitys-best-investors-are-dead/

-W

The ability to make $100 an hour has nothing to do with being a good investor....it doesn't even guarantee that someone is an 'intelligent' person.  Pro athletes probably make $10,000 'an hour' and plenty of them are likely absolutely terrible investors.  One of my friends from college is a complete airhead but is stunningly beautiful with a great personality and makes well into the six figures a year range shilling pharmaceuticals to old doctors...she has more money tied up in purses and shoes than retirement accounts.  Point being, wages are a rather hollow way to measure how good somebody would be at something or how smart they are, especially since many (most?) people likely take jobs that are less than 'maximum possible earning potential' to gain fulfillment/enjoyment out of their life by doing something they want to do.  Do smarter people 'generally' make more money than dumb people on average, absolutely...do all intelligent people have the ability or desire to easily make 100 an hour, no.

As far as beating 'pros'...who are you talking about by 'pros'.  Mutual funds? They have hundreds of millions/billions to manage and fairly strict rules within what they can do, how much can be allocated to a position, possible forced liquidations depending on redemptions, and know they have to have a way to explain themselves if things go wrong...it's not like these guys have free reign to cowboy it up however they want and 'market return' is the best they can manage.  You have to look at how they are compensated and evaluated too, it's a rather risk adverse environment, being 'average' will get you a pat on the back and a nice fat commision check.  Taking risks *might* result in being extrordinary, but *might* also end in you being fired if you underperform.   I am not implying I am better at this than many of the people who do it professionally, just that I have different circumstances and constraints to work within as well as different motivations.

In simplest terms a guy who had 90% of his portfolio in an index fund and 10% in AAPL, only the most visible/well known stock on the planet, and done nothing else would have beat the market (including bear market) and that would have required essentially zero time, effort, or creativity (I am an not advocating this strategy, just saying... it's not 'impossible').   

Point being, I'm not implying that being a more active investor guarantees you will beat the market, that i personally make wildly better returns than the market, that i beat the market every year, that every stock i buy is phenomenal success, or that you will have a positive return every year, etc etc etc..   But implying that its impossible or even highly unlikely for someone who has been formally educated in valuing companies and securities and diligent about learning more can't supplement base index fund holdings with 5-10 well researched and monitored positions and possibly do a little better seems close minded.   
« Last Edit: July 10, 2015, 12:52:40 PM by Terrestrial »

waltworks

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Re: Year to date investment returns
« Reply #98 on: July 10, 2015, 12:51:09 PM »
As I said, I'm not arguing it's impossible. But if you read through those studies, you find that the folks who outperformed are *incredibly* rare. The Taiwan case - for example: in a population of 300,000 investors, only about 500 outperformed consistently over a 5 year period (Barber et al. 2011). When analyzing intelligence, we find that "Smarter investors earn returns net of trading costs that are on par with appropriate benchmark returns; they make good stock picks, but only good enough to cover their trading costs. " ( Korniotis and Kumar, in press). I could go on and on, but that's a laundry list of reasons that you're not going to do well even if you're capable and motivated.

Here's the bottom line from the excellent Barber/Odean meta-analysis you provided the link to: "A careful reading of the research on cross-sectional variation in performance yields three general conclusions. First, there is strong evidence of cross-sectional variation in trading skill. Second, security selection skill among individuals is rare (i.e. confined to a relatively small group of stocks or individuals). Third, even the best stock pickers have trouble covering transaction costs."

-W

beltim

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Re: Year to date investment returns
« Reply #99 on: July 10, 2015, 01:18:15 PM »
As I said, I'm not arguing it's impossible. But if you read through those studies, you find that the folks who outperformed are *incredibly* rare. The Taiwan case - for example: in a population of 300,000 investors, only about 500 outperformed consistently over a 5 year period (Barber et al. 2011).

That study looks at day traders – and many other studies have shown that the less frequently you trade, the higher your returns are.  No one here is advocating day trading.

In other studies, the percentage of individual investors who consistently outperform is much higher (for example, 10-20% in the Coval et al study I linked to). 

In any case, whatever the number of percentage of individual investors who beat the market, there are a few well-established conclusions:
1) The number of individual investors who outperform the market is relatively small
2) Previously market outperformance is predictive of future market outperformance (among individual investors)
3) Most investors should not pick individual stocks

I don't disagree with most of what you said, but point 2 is really what I wanted to focus on because it directly contradicts your earlier statement:
Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well).