Where do you buy individual stocks?

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Durzo
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Where do you buy individual stocks?

Post by Durzo »

One again I come seeking the wisdom of Bogleheads.

I am looking to buy individual stocks later this year or early next year. I understand that I am likely to under-perform the market/index. What I am planning is to slowly buy 30-50 individual stocks over the next few years. This will be in a taxable account and not for retirement purposes. I max out my roth IRA and 401k with index funds. I will use the S&P 500 and my 401k/roth IRA (100% stocks tilted towards small cap and international) to set a benchmark for my make shift index. I am 23 years old so I want to track the performance for the next 30 years or so. My guess is that with 50 stocks over 30+ years I will trail the S&P 500 slightly but fare better than most funds.

To do all of that I need a place where I can buy some stocks. Where do bogleheads buy their individual stocks? Scott trade? Etrade? My needs are very simple:
  • Low transaction cost for buying and selling
    Low requirements for initial purchase. I want to start very small $50-$500
    Keeps track of performance.
    Keeps track of gains/losses to facilitate TLH and selling.
Thanks!

Edited for formatting
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coachz
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Re: Where do you buy individual stocks?

Post by coachz »

Vanguard brokerage account
lgs88
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Re: Where do you buy individual stocks?

Post by lgs88 »

Do be wary of your trading costs; at ~$7 per trade, you're surrendering nearly 15% of your $50 initial investment at the very start.

If you're truly adamant about doing this, consider holding off on your trades until you have accumulated enough to make your trading costs a less significant chunk of your total purchase.
merely an interested amateur
MittensMoney
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Re: Where do you buy individual stocks?

Post by MittensMoney »

If you are only buying stocks in a Taxable account, I 100% recommend Robinhood. It's not a super robust brokerage, but the trades are 100% free which can't be beat. I use TD Ameritrade for my ROTH IRA, I use that platform for information & insights, and then actually purchase everything (outside of the my ROTH IRA) in Robinhood.

Robinhood is a mobile only platform at the moment, it's fairly barebones, but it's 100% free to buy and sell stocks. If you're buying 30-50 individual positions it will be a very real savings for you.

It tracks your overall performance, cost basis, etc., so I think it will cover what you're looking for.
livesoft
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Re: Where do you buy individual stocks?

Post by livesoft »

I would not do what you are suggesting, but I have the benefit of hindsight that you do not have. I used to do a little bit of this.

I suggest you use a broker that gives you free trades such as WellsTrade (my favorite), TDAmeritrade, and/or MerrillEdge. There is no reason to pay any commissions for great executions any more since so many places give free trades on stocks.
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cmf
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Re: Where do you buy individual stocks?

Post by cmf »

MittensMoney wrote:If you are only buying stocks in a Taxable account, I 100% recommend Robinhood. It's not a super robust brokerage, but the trades are 100% free which can't be beat. I use TD Ameritrade for my ROTH IRA, I use that platform for information & insights, and then actually purchase everything (outside of the my ROTH IRA) in Robinhood.

Robinhood is a mobile only platform at the moment, it's fairly barebones, but it's 100% free to buy and sell stocks. If you're buying 30-50 individual positions it will be a very real savings for you.

It tracks your overall performance, cost basis, etc., so I think it will cover what you're looking for.
+1 for Robinhood. I only dabble with individual stocks for learning and fun but Robinhood is very easy to use and free.
GuitarXM
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Re: Where do you buy individual stocks?

Post by GuitarXM »

How safe is robinhood?
I dont understand how they make money if there is no comission?
Dottie57
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Re: Where do you buy individual stocks?

Post by Dottie57 »

Fidelity brockerage account. Very easy to do.
niceguy7376
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Re: Where do you buy individual stocks?

Post by niceguy7376 »

Sogotrade is another cheap option (not free). You can buy buckets of trades for less that you need to use within a time frame. Last I checked, it was $3 a trade in buckets or $5 with pay as you go option.
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Taylor Larimore
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What experts say about buying individual stocks.

Post by Taylor Larimore »

What I am planning is to slowly buy 30-50 individual stocks over the next few years.
Durzo:

Before buying individual stocks (like mutual fund managers that regularly underperform the market), read what experts say:
Alpha Architect: "Between 1983 and 2006, around 73% of firms had a drawdown larger than 50% (the S&P 500’s maximum drawdown during this period was around 44%)."

Barber and Odean Study: "Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earned an annual return of 11.4 percent, while the market returned 17.9 percent."

Brett Arends, Wall Street Journal columnist: "Buy individual stocks only as a gamble."

Benjamin Graham: "I have little confidence, even in the ability of analysts, let alone untrained investors, to select common stocks what will give better than average results."

Bill Bernstein, author of The Four Pillars of Investing: "Picking individual stocks is like volleying with the Williams sisters."

Jack Bogle: "Attempting to build an investment program around a handful of individual securities is, for all but the most exceptional investors, a fool's errand."

Adam Bold, author, adviser: "Mutual funds don't have the pizzazz of the hot stocks of the moment. If you're looking for entertainment, go gambling in Las Vegas. But if you want to accumulate real money for your retirement and other goals, mutual funds are the safer bet."

James Dahle, MD, financial advisor, and author of The White-Coat Investor: “Think you know how to pick stocks? Then guess again. Every time you buy or sell the person on the other side of the trade likely has an IQ of 160, spends 70 hours per week analyzing his industry, and has access to computing power and databases you can only dream of.”

Dalbar Research Report (July 15, 2003): "The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S & P 500 index earned annually for the last 19 years."

Charles Ellis author of Winning the Loser's Game: "If you, like Walter Mitty, still fantasize that you can and will beat the pros, you'll need both luck and prayer."

Kenneth French: Former President of the American Finance Association: "The market is smarter than we are and no matter how smart we get, the market will always be smarter than we are."

Sy Harding, Forbes contributor: "My advice – avoid individual stocks! Even experienced full-time professional money managers, with staffs of trained people performing research, with access to data, software, and corporate contacts that most part-time investors could not come close to duplicating, struggle to match the market’s performance by buying, holding, or selling individual stocks."

Danial Kahneman, Nobel Laureate: "There is general agreement among researchers that nearly all stock pickers, whether they know it or not-and few of them do-are playing a game of chance."

Kiplinger Personal Finance “Eight Stocks to Buy Now” in the January, 2015 forecast issue under-performed its “Five Stocks to Sell” twelve months later.

Michael Lewis, former bond broker and financial journalist: "A vast industry of stockbrokers, financial planners, and investment advisers skims a fortune for themselves off the top in exchange for passing their clients' money on to people who, as a whole, cannot possibly outperform the market."

Mathwizard: The vast majority of trades you would make are between you and a professional investor. Both of you are assigning a value to the stock, and one of you thnks the price is high and another thinks it is low. Who do you suppose is more likely to be right.

Standard & Poor's: When the S&P 500 index was officially formed in 1957 to its 50th anniversary in 2007, only 86 of the original 500 companies still remained.

Larry Swedroe, author of many financial books: "Owning individual stocks and sector funds is more akin to speculating, not investing."

David Swensen, Chief Investment Officer of Yale University: "There's no way that spending a few hours a week looking at individual securities is going to equip an investor to compete with the incredibly talented, highly qualified, extremely educated individuals who spend their entire professional careers trying to pick stocks."

Eric Tyson, author of Mutual Funds for Dummies: The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time, experienced money managers is, how should I say, ludicrous and absurd."
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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coachz
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Re: Where do you buy individual stocks?

Post by coachz »

Taylor, those are a bunch of old foggies. What do they know. :sharebeer
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Re: Where do you buy individual stocks?

Post by bloom2708 »

Can you figure out how to get the same "joy" buy purchasing "all the stocks" in an index?

You like Apple. Buy the Total US Stock Index. It is in there.

You like Alphabet. Buy more Total US Stock Index. It is in there.

You like Tesla. Buy more Total US Stock Index. It is in there.

Plus you get "all the other stocks". It is a mind shift, but set your allocation and buy more of the few, low cost funds that get you "everything" at market weight.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
cmf
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Re: Where do you buy individual stocks?

Post by cmf »

GuitarXM wrote:How safe is robinhood?
I dont understand how they make money if there is no comission?
As to safety:

https://support.robinhood.com/hc/en-us/ ... n-Security

Here's how they make money:

https://support.robinhood.com/hc/en-us/ ... akes-Money
Last edited by cmf on Thu Jul 21, 2016 12:39 pm, edited 1 time in total.
eddot98
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Re: Where do you buy individual stocks?

Post by eddot98 »

Before I knew about Index Funds, I bought individual stocks through DIvidend Reinvestment Plans, or DRIPs for short. I still hold a few and I have been divesting myself of them over the past few years. All of them have capital gains, some significant enough that it's necessary to plan their sales so that our tax brackets aren't negatively affected. There is lots of necessary record keeping and it's getting tiresome. Did I do better than the S&P 500? Who knows, but probably not. It was fun at first, but it's time to simplify. I still have $20,000+ of Jonhson Controls, half of which is capital gains, and don't know whether to sell before the Tyco merger or not. Good luck. Info on DRIPs is readily available on the Internet.
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Re: Where do you buy individual stocks?

Post by coachz »

bloom2708 wrote:Can you figure out how to get the same "joy" buy purchasing "all the stocks" in an index?

You like Apple. Buy the Total US Stock Index. It is in there.

You like Alphabet. Buy more Total US Stock Index. It is in there.

You like Tesla. Buy more Total US Stock Index. It is in there.

Plus you get "all the other stocks". It is a mind shift, but set your allocation and buy more of the few, low cost funds that get you "everything" at market weight.
I don't like Apple. How to get it out of my Total Stock Market Index fund. :-)
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Taylor Larimore
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"old foggies"

Post by Taylor Larimore »

coachz wrote:Taylor, those are a bunch of old foggies. What do they know. :sharebeer
coachz:

They know more than I know.

Best wishes.
Taylor
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Re: Where do you buy individual stocks?

Post by bloom2708 »

coachz wrote:
bloom2708 wrote:Can you figure out how to get the same "joy" buy purchasing "all the stocks" in an index?

You like Apple. Buy the Total US Stock Index. It is in there.

You like Alphabet. Buy more Total US Stock Index. It is in there.

You like Tesla. Buy more Total US Stock Index. It is in there.

Plus you get "all the other stocks". It is a mind shift, but set your allocation and buy more of the few, low cost funds that get you "everything" at market weight.
I don't like Apple. How to get it out of my Total Stock Market Index fund. :-)
That particular day (you have angst for Apple) you buy the Total International Index fund. You didn't sell and you scratched your itch to "buy something". :mrgreen:

I would visit my brother in law and he would get on these "Let's go spend some money on something...." kicks. I laughed each time but let him spend his money freely.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
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Re: Where do you buy individual stocks?

Post by whodidntante »

I use Robinhood. It is a small VC funded company and it is unlikely that they are profitable right now, though I haven't researched it. The risk that you lose your money due to robinhood folding is basically nil due to regulation. A more realistic risk is that robinhood is bought out, and you wake up one day to find your robinhood account is now at scotttrade or something, along with the usual charges.
SuperSaver
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Re: Where do you buy individual stocks?

Post by SuperSaver »

Merrill Edge as Platinum Bank of America Preferred client....

100 free trades a month with minimum balance.

I go to the branch location every so often. Meet the rep. They've been excellent with customer service. Have had all my incidental fees waived after a single email/phone call
TropikThunder
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Re: Where do you buy individual stocks?

Post by TropikThunder »

Durzo wrote:Once again I come seeking the wisdom of Bogleheads.
Is there even a tiny, remote portion of BH wisdom that approves of buying individual stocks?

"Forget the needle, buy the haystack,"
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Durzo
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Re: Where do you buy individual stocks?

Post by Durzo »

Thanks you all for your replies. I will look into the services mentioned. It looks like the cost trades can be kept near zero.
TropikThunder wrote:
Durzo wrote:Once again I come seeking the wisdom of Bogleheads.
Is there even a tiny, remote portion of BH wisdom that approves of buying individual stocks?

"Forget the needle, buy the haystack,"
If BH wisdom looks something like this:

https://www.bogleheads.org/wiki/Boglehe ... philosophy

I would say that individual stocks can fit right in. I am not market timing, I am not actively stock picking and I am not buying penny stocks. I am going to choose 50 stocks to hold for the long run, I am going to keep costs down, the stocks will reflect my risk level, I will stay the course, I will keep costs near zero, and I am investing early at 23 yo.
GuitarXM
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Re: What experts say about buying individual stocks.

Post by GuitarXM »

Taylor Larimore wrote:
What I am planning is to slowly buy 30-50 individual stocks over the next few years.
Durzo:

Before buying individual stocks (like mutual fund managers that regularly underperform the market), read what experts say:
Alpha Architect: "Between 1983 and 2006, around 73% of firms had a drawdown larger than 50% (the S&P 500’s maximum drawdown during this period was around 44%)."

Barber and Odean Study: "Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earned an annual return of 11.4 percent, while the market returned 17.9 percent."

Brett Arends, Wall Street Journal columnist: "Buy individual stocks only as a gamble."

Benjamin Graham: "I have little confidence, even in the ability of analysts, let alone untrained investors, to select common stocks what will give better than average results."

Bill Bernstein, author of The Four Pillars of Investing: "Picking individual stocks is like volleying with the Williams sisters."

Jack Bogle: "Attempting to build an investment program around a handful of individual securities is, for all but the most exceptional investors, a fool's errand."

Adam Bold, author, adviser: "Mutual funds don't have the pizzazz of the hot stocks of the moment. If you're looking for entertainment, go gambling in Las Vegas. But if you want to accumulate real money for your retirement and other goals, mutual funds are the safer bet."

James Dahle, MD, financial advisor, and author of The White-Coat Investor: “Think you know how to pick stocks? Then guess again. Every time you buy or sell the person on the other side of the trade likely has an IQ of 160, spends 70 hours per week analyzing his industry, and has access to computing power and databases you can only dream of.”

Dalbar Research Report (July 15, 2003): "The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S & P 500 index earned annually for the last 19 years."

Charles Ellis author of Winning the Loser's Game: "If you, like Walter Mitty, still fantasize that you can and will beat the pros, you'll need both luck and prayer."

Kenneth French: Former President of the American Finance Association: "The market is smarter than we are and no matter how smart we get, the market will always be smarter than we are."

Sy Harding, Forbes contributor: "My advice – avoid individual stocks! Even experienced full-time professional money managers, with staffs of trained people performing research, with access to data, software, and corporate contacts that most part-time investors could not come close to duplicating, struggle to match the market’s performance by buying, holding, or selling individual stocks."

Danial Kahneman, Nobel Laureate: "There is general agreement among researchers that nearly all stock pickers, whether they know it or not-and few of them do-are playing a game of chance."

Kiplinger Personal Finance “Eight Stocks to Buy Now” in the January, 2015 forecast issue under-performed its “Five Stocks to Sell” twelve months later.

Michael Lewis, former bond broker and financial journalist: "A vast industry of stockbrokers, financial planners, and investment advisers skims a fortune for themselves off the top in exchange for passing their clients' money on to people who, as a whole, cannot possibly outperform the market."

Mathwizard: The vast majority of trades you would make are between you and a professional investor. Both of you are assigning a value to the stock, and one of you thnks the price is high and another thinks it is low. Who do you suppose is more likely to be right.

Standard & Poor's: When the S&P 500 index was officially formed in 1957 to its 50th anniversary in 2007, only 86 of the original 500 companies still remained.

Larry Swedroe, author of many financial books: "Owning individual stocks and sector funds is more akin to speculating, not investing."

David Swensen, Chief Investment Officer of Yale University: "There's no way that spending a few hours a week looking at individual securities is going to equip an investor to compete with the incredibly talented, highly qualified, extremely educated individuals who spend their entire professional careers trying to pick stocks."

Eric Tyson, author of Mutual Funds for Dummies: The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time, experienced money managers is, how should I say, ludicrous and absurd."
Best wishes.
Taylor
So why doesnt everyone including the professionals just buy an index fund then?
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Petrocelli
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Re: Where do you buy individual stocks?

Post by Petrocelli »

I buy my stocks through Schwab. It has great research tools and the commission is $7.95 per trade.
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nisiprius
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Re: Where do you buy individual stocks?

Post by nisiprius »

Given your plan, you won't be making all that many trades, so I don't see that it matters much where you do it. If I understand correctly, you already have a Roth IRA. Where do you have it? If it is a full-service brokerage, just buy your stocks at the same place; why complicate things by creating accounts at multiple institutions if you don't need to?
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JDot
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Re: Where do you buy individual stocks?

Post by JDot »

When I used to buy individual stocks I used Scottrade and Robinhood. The last time I used Robinhood it lacked the tools that you might eventually want. At least, the free version did. I'm not sure if they have some paid system now. I used a certain paid newsletter to select penny stocks. To do that you will want to be able to use stop loss orders, etc. For the record, I made very good returns, but I never risked much money. I found this website and pretty much gave up on individual stocks. I still own some Berkshire Hathaway on my Scottrade account.

If you're planning on buy and holding individual stocks for a long time, maybe Robinhood would be enough... I think others pointed out that you must have a mobile device to use it. (at least that's how it was when I used it)

Have fun!
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Re: Where do you buy individual stocks?

Post by oldcomputerguy »

Durzo wrote: If BH wisdom looks something like this:

https://www.bogleheads.org/wiki/Boglehe ... philosophy

I would say that individual stocks can fit right in.
Section 4 - "Diversify":
Rather than trying to pick the specific securities or sectors of the market (US stocks, international stocks, and US bonds) that will outperform in the future, Bogleheads buy funds that are widely diversified, or even approximate the whole market.
Section 6 - "Use index funds when possible":
Today, Vanguard Total Stock Market Fund[11] is the largest mutual fund in the world, and is also one of the best values. Fund expenses weigh in at about one-tenth the industry average. By purchasing this single fund, an investor owns a piece of essentially every public company in the US. This diversification lowers risk, because the failure of any one company does not have a big effect.
Seems to me that your plan to purchase individual stocks don't fit in with these provisions of the Boglehead Philosophy.
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Re: What experts say about buying individual stocks.

Post by Engineer250 »

GuitarXM wrote:So why doesnt everyone including the professionals just buy an index fund then?
Why do ALL individuals not just buy 100% index funds? Multitude of possible answers. Dunning-Kruger effect: we think we know more than we do, enough to "outsmart" the market. Argument from Authority: we trust the guy in the suit at the bank who is telling us to get in on life insurance/some particular mutual fund, or our brother-in-law who says now is the time to buy property.

Why do professionals not just buy index funds? I bet a lot of them do. But you don't make money telling someone about the 3 Fund Portfolio. You can make money if you can start your own hedge fund and walk away with a tasty 1% management fee or something similar. You don't have to "beat" the market because most people don't really know what the market's real returns are. As long as you make some money for your investors, who think they are smarter than index fund investors, and think you are smart and an expert, they will stay with you and you can draw 1% off their money year after year.
Where the tides of fortune take us, no man can know.
cmf
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Re: Where do you buy individual stocks?

Post by cmf »

My take on the original post is the OP wants to invest in individual stocks as an experiment. I don't think this is Durzo's retirement account. IIRC Mr. Bogle was well aware that some investors would like to play. To that end he recommended creating a "funny money" account not to exceed 10% of holdings. I think what Durzo is contemplating is well within the Bogle Way, if this is a "funny money" account.
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Re: Where do you buy individual stocks?

Post by jdb »

Same platform which I use to buy individual muni bonds and build a TIPS ladder at auctions and mutual funds and ETFs. Vanguard. Keep it simple.
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Jack Bogle on "Funny Money"

Post by Taylor Larimore »

Durzo:

This is what Jack Bogle said in a recent interview:
I recommend you have a funny money account of no more than 5% of your portfolio. I also recommend that after five years, check it out. Has it done better than the long-term investment or worse? I’d be astonished if at least 95% of those funny money accounts don’t do worse.
http://www.marketwatch.com/story/jack-b ... 2014-11-03

Best wishes
Taylor
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arcticpineapplecorp.
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Re: Where do you buy individual stocks?

Post by arcticpineapplecorp. »

As cmf said,this sounds like an experiment. But here's the thing. Even the OP says:
Durzo wrote:One again I come seeking the wisdom of Bogleheads.
My guess is that with 50 stocks over 30+ years I will trail the S&P 500 slightly but fare better than most funds.
If you believe your individual stocks will trail the S&P500, then why on earth wouldn't you just buy an S&P500 index fund?

It seems to me I'd rather have a guaranteed return of the S&P500 than a possibility of underperforming it.

By an S&P500 index fund, enjoy the next 30 years of your life and don't second guess your decision.

And that is my boglehead wisdom to you my friend.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Where do you buy individual stocks?

Post by arcticpineapplecorp. »

One other thing (couldn't help myself)...you do realize that some of the companies you select will not be around in 30 years right?

Enron was only around for 16 years (1985-2001 R.I.P.) but at one point it was referred to as the 6th largest company (I think there's debate about that but you get the point. It was a big company at one point).

You know that Apple was once 90 days from bankruptcy right? http://thenextweb.com/apple/2010/06/02/ ... days/#gref
That was in 1990. The company was founded 4/1/1976. So a company you could have owned might have almost gone out of business 14 years later.

Think about it. Apple turned out ok. Enron and many others, not so much. You just never know. Neither does anyone else. If you buy the S&P500 index fund you are guaranteed for it to be around in 30+ years. And if it's not, then you have much more pressing concerns than what happened to your money.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Where do you buy individual stocks?

Post by Oak&Elm »

I can understand why someone who is 23 years old wants to swing for the fence. Why not be smart with say 95% of your money and gamble 5%. Here's a pair for ya NUGT 3x gold stock and DUST 3x gold short stock. There has been about a 400% swing in these over the last year. Who knows, you might guess right.
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Re: Where do you buy individual stocks?

Post by Timon0201 »

loyal3, free trades and has a lot of the big stock like coca-cola, disney, apple, google, etc
https://www.loyal3.com/stocks
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Re: Where do you buy individual stocks?

Post by Toons »

Schwab :happy
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BanditKing
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Re: Where do you buy individual stocks?

Post by BanditKing »

It seems the only BH-approved stock around here is BRK.B.
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Durzo
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Re: Where do you buy individual stocks?

Post by Durzo »

I hear you guys. Just to clarify a couple of things.

1. It is just for fun/experiment.
2. It will be a very small portion of my portfolio. My upper bound for individual stocks in 2016-17 is $500. I max 401K + employer match + Roth IRA + HSA. The $500 is <1.5% of my contribution for the year and even less of my total portfolio.
3. As some of you noted I think it's great that the Boglehead model (and Mr. Bogle himself) supports the idea that for some people a <5% "play money" allocation is perfectly reasonable.

As many have noted in the forum before the BH philosophy should not be a set of rigid rules. By being more inclusive the BH philosophy can help more people instead of alienating them. Thank you all for the replies.
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abuss368
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Re: Where do you buy individual stocks?

Post by abuss368 »

Bogleheads,

I was fortunate enough to attend a lecture of David Swensen's where he essentially reinforced his quote above and then expanded on it:

David Swensen, Chief Investment Officer of Yale University: "There's no way that spending a few hours a week looking at individual securities is going to equip an investor to compete with the incredibly talented, highly qualified, extremely educated individuals who spend their entire professional careers trying to pick stocks."

During the lecture I realized Dr. Swensen knows a lot more about investing then me or any or us.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
afan
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Re: Where do you buy individual stocks?

Post by afan »

There is some logic to this approach but I doubt the benefits justify the costs.

The first benefit is tax loss harvesting. By having individual stocks you have more chance at having losers than if you had the total market only. The downside here is that you have to invest the time to identify and sell losers. Not a huge challenge I grant you, but more work than parking your money in an index fund.

You have a more complex tax situation. Again, not prohibitive, but it will take more time to do your taxes.

As noted above, it is not realistic to assume that all your companies will stay around forever. Not just bankruptcy. Companies split and merge. You will need to decide how to respond to offers surrounding these events and track your cost basis across the years. This gets to be a hassle.

A minor concern is that your performance will deviate from the market. If most of your money is in index funds, then even 20℅ in individual stocks will not cause a lot of tracking error if you are systematic in your purchases. Start by getting, say, the top 10 stocks in TSM. then sample your way down through the next 500, attempting to mirror the properties of the market as a whole. Thus, diversify across industries, PE ratios, etc. Again, this is more work than just picking a stock at random, but you will trail the index by less.

You will save the expense ratio of a fund, but these are now so low that hardly seems worth considering.

Remember that "no commission" is not the same as "free". There are spreads that you always face. Limit orders reduce but do not eliminate this. If you go into small stocks there can be market impact costs. These you can avoid by staying with large and mid cap stocks.

The major risks are a run of bad luck with an undiversified portfolio and the temptation to trade actively, rather than just running your own stratified sample index fund.

A lot of work for a hypothetical gain, mainly tax savings. Not crazy. Not worth it IMHO.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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Petrocelli
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Re: Where do you buy individual stocks?

Post by Petrocelli »

These threads on where to buy an individual stock always end up in an attempt to convince the OP not to buy individual stocks. Let me argue to the contrary.

A few years back, I started investing in stocks with the following characteristics: (1) Beta less than 1; (2) PE ratio less than 20; (3) market cap over $10 bil.; and (4) dividend of at least 2%.

The stock portfolio has provided nice diversification benefits when paired with my Vanguard mutual funds. It tends to do well in a down market, since it hold mostly large blue chip stocks.

Over the past 5 years, the portfolio has returned 11.84% versus 12.39% for the 500 Index.

However, the past 5 years, the 500 Index SPY ETF had a standard deviation of 12.08%. My portfolio had a standard deviation of 9.61%.

Moreover, over the past year, it has provided very nice diversification. It returned 17.49% versus 4.45% for the 500 Index.

I have maintained, and continue to maintain, that there is a place for low beta stocks in a portfolio. If you want more info., read Ben Stein's "Yes, you can Supercharge Your Portfolio."
Petrocelli (not the real Rico, but just a fan)
livesoft
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Re: Where do you buy individual stocks?

Post by livesoft »

^Sure, but durzo stated they were limited to about $500 in capital to buy individual stocks. They will need to have a no-commission broker or this experiment won't go anywhere.
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sheroo
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Re: Where do you buy individual stocks?

Post by sheroo »

+1 For Robinhood which is free.
AFAIK the next cheapest is TradeKing $4.95 per trade.
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celia
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Re: Where do you buy individual stocks?

Post by celia »

Durzo wrote:My needs are very simple:
  • Low transaction cost for buying and selling
    Low requirements for initial purchase. I want to start very small $50-$500
    Keeps track of performance.
    Keeps track of gains/losses to facilitate TLH and selling.
All brokerage houses do this, although fees/commissions vary greatly. Vanguard is probably your best bet if you already have accounts with them.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
tschanks1
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Re: Where do you buy individual stocks?

Post by tschanks1 »

Robin Hood! It's free. And Acorn, with spare change, although it's not really individual stocks. I've used Ameritrade and liked them too.
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