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Re: "Steelmanning" the case for owning individual stocks

Post by nedsaid » Sat May 18, 2019 1:18 pm

Hdas, your thread is very interesting. If you generate alpha doing what you are doing, more power to you.

Some observations. You seem to have evolved from individual stocks to ETFs. It seems like you are sort of like, well you know, factor investing. Letting the ETFs doing the screening for you. Pretty much you are saying that you have run up the white flag and admitting that you couldn't do individual security selection better than the ETFs.

When folks talk about trading, it gives me pause. I have posted often about the "Nedsaid effect." That is the phenomenon of incorrect sell/buy decisions. There is a large tendency for the investment that you sell to do better than what you buy to replace, at least in the shorter term. It seems that the ratio of incorrect sell/buy decisions to correct sell/buy decisions is at a ratio of 2:1 or even 3:1. Even professional investors get plagued by this.

Why does the "Nedsaid effect" exist? One is investor impatience. Strategies and investments tend to start performing again when enough people give up and throw in the towel. Second, it is hard to predict when markets will turn. You can be right but right too early, sometimes way too early. Third, you are up against big institutions who perform probably 90% of all transactions. To think that you are going to outsmart a big institution with Math PhD's, super fast computers, and superior software is just laughable. Problem is, the more you trade, the greater toll that the "Nedsaid effect" takes on your performance. The effect of incorrect sell/buy decisions really adds up over time. I suppose a fourth reason for the "Nedsaid effect" is that many small investors don't know what they are doing. Many folks read one book and think themselves experts.

One advantage that you have over institutions is that you can take a longer term approach. You aren't benchmarked to the market averages quarter by quarter as the institutions are. Also no need to do such things as window dressing each quarter. Window dressing is buying the recently hot performing stocks near the end of the quarter so that shareholders can see that you owned them. It reduces the embarrassment of underperforming the benchmarks as at least you were in the "best" stocks. It is a way of covering up what a portfolio manager really was doing. Also, institutions have done some pretty dumb things themselves.

I do agree that 25 stocks can provide an amazing amount of diversification. For an individual, if you own more than that, it gets to be difficult to follow each company. But indexes are a more efficient way to invest. For myself, I have done most things right as an investor in individual stocks but when I trail the indexes, I trail by as much as 1% a year over 15 years. Whenever I have outperformed, it has been by a fraction of 1%. So not much to write home about except that the research shows that most individuals picking stocks trail the indexes by 4% a year.

Also keep in mind that the analysis tools you are using, like Portfolio Visualizer, while quite good are still inferior to what the big Institutional investors have access to. For one thing, they all have the Bloomberg machine that provides instantaneous market information. You are also doing the analysis yourself, you don't have a Math PhD on your payroll. Also, you do this only part-time vs. teams of full-time people. Even if you had the exact same tools and information as the institutions, they have the greater expertise.

As far as Alpha from rebalancing, color me skeptical. In my own analysis, it seems that rebalancing sometimes helped performance and sometimes hurt. If you are rebalancing between stocks and bonds, I doubt you will experience Alpha on a long term basis, in fact rebalancing will likely dampen your returns as stocks over time return more than bonds. I don't believe in the rebalancing bonus, rebalancing is more about controlling risk than enhancing return. If you are rebalancing between volatile asset classes, that is sectors of the stock market, you might have something there. Alpha there is possible, but the markets are pretty darned efficient, though not perfectly so.

My guess is that if you are patient and do some sort of factor investing, you as an individual investor have a shot at Alpha. But it looks like you are doing a fair amount of trading and rebalancing and I think both things reduce your chances of outperformance. Pretty hard to outguess the market as a whole.
A fool and his money are good for business.

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Re: "Steelmanning" the case for owning individual stocks

Post by mhadden1 » Sat May 18, 2019 1:42 pm

I hope you have fun frittering your time away searching for alpha. Try not to lose too much. :beer
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

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Re: "Steelmanning" the case for owning individual stocks

Post by KyleAAA » Sat May 18, 2019 1:54 pm

Owning individual stocks makes a lot of sense for very wealthy individuals. They can make sense in niche cases for those of more normal means. If you told me you wanted to hold 50 stocks based on some reasonable set of rules I would say sure, go for it. Just make sure you understand the risks.

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Re: "Steelmanning" the case for owning individual stocks

Post by Call_Me_Op » Sun May 19, 2019 8:09 am

If you enjoy it - by all means have at it, but don't fool yourself into to thinking this is a productive use of your time and energy.
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Re: "Steelmanning" the case for owning individual stocks

Post by aristotelian » Sun May 19, 2019 8:11 am

The best argument is tax efficiency, not beating the market.

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bltn
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Re: "Steelmanning" the case for owning individual stocks

Post by bltn » Wed May 22, 2019 3:24 pm

Your proposed endeavor reminds me of something I tried 25 years ago. Diversification, decreased correlation with the returns of my retirement fund, and lots of control over the investment. I tried to buy and manage rental real estate. A chance for outsized returns with the leverage. Poor liquidity, but since it was going to be securely under my management and control, that probably didn't t matter.
It took more time and effort than I thought, and the returns were no better than I made later with my first index fund, which tracked the s and p 500. And for those final returns, I spent many more nights, and weekends working with, and worrying about the investment than I thought I would. With more knowledge, maybe I would have done better.
This was a great learning experience for me. Thankfully, I didn't use more than about 15% of my savings. And thankfully, I did this early in my investing career so that I knew what I should avoid in the future.
I think that the chances are great that the value of this venture will be as a learning experience for you.
Best of luck.

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Re: "Steelmanning" the case for owning individual stocks

Post by nedsaid » Wed May 22, 2019 4:13 pm

hdas wrote:
Wed May 22, 2019 12:23 pm
nedsaid wrote:
Sat May 18, 2019 1:18 pm
Pretty much you are saying that you have run up the white flag and admitting that you couldn't do individual security selection better than the ETFs.
I guess that's one way to say it. I notice that my screening/ranking dictates most of the difference. This portfolio doesn't look like anything you see in an ETF. I'm simply not interested in the analysis of balance sheets data. My strengths are in time series analysis and systematic implementations. :greedy
What you have found is that this stuff is hard. I used to pour over the ValueLine research at the Public Library and scour financial publications for stock tips. Did a lot of research and it just didn't pay off. After the 2000-2002 bear market, I look at a few metrics and try to buy good stocks in good industries at reasonable prices. Don't do the fancy spreadsheet stuff, just eyeballing. Pretty much, I have sampled the S&P 500 Index and it shouldn't be too surprising that my results have shadowed those of the Index.

So it sounds like you have fired yourself as a fundamental analyst and hired yourself as a technical analyst. Good luck interpreting the wiggles and squiggles on graphs. Louis Rukeyser ridiculed this practice every chance he got on his famous TV show. Hint: your chances of success are better on the fundamental side. Markets are sometimes driven by emotion rather than logic and this trashes a lot of quant models.
A fool and his money are good for business.

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Re: "Steelmanning" the case for owning individual stocks

Post by beentherenyt » Tue Jun 04, 2019 2:38 pm

The reason I choose to invest a very small portion (maybe 2%) of my assets in individual stocks is because, as someone who enjoys reading about money matters/investing/finance/etc., I think it's much more fun than investing solely in the same 6 Admiral funds so many other people on this forum are dedicated to exclusively. That's not to say it's likely to maximize my lifelong returns. But I enjoy participating in a marketplace where yesterday my meager holding was up 320% and today (the last time I looked) it was down 40% (LGCY}. That's just not going to happen in VDADX.

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Re: "Steelmanning" the case for owning individual stocks

Post by Hector » Thu Jun 13, 2019 5:43 pm

I do own individual stocks; https://www.bogleheads.org/wiki/Passive ... ual_stocks
hdas wrote:
Tue Jan 29, 2019 12:48 pm
1. A desirable fund with X,Y characteristics doesn't exist.
If you have reasons to believe that you will gain more than total stock market. Go for it.
I don't think I know how to beat the market and my stock allocation is world stock allocation.
hdas wrote:
Tue Jan 29, 2019 12:48 pm
3. The strategy can be implemented at reasonable cost and sensitive to tax issues.
You definitely pay less tax by owing no and low dividend stocks in non-retirement accounts.
hdas wrote:
Tue Jan 29, 2019 12:48 pm
4. The investor has the interest, quantitative skills and time to carry on with the endeavor.
I think majority of us can't beat the market.
hdas wrote:
Tue Jan 29, 2019 12:48 pm
1. The odds of outperforming the benchmark over the long term are low. But how about when adding low cost?
Apart from expense ratio, I doubt most can beat most benchmarks.
hdas wrote:
Tue Jan 29, 2019 12:48 pm
2. Tax Loss Harvesting becomes a lot easier.
I don't think its any easier.
hdas wrote:
Tue Jan 29, 2019 12:48 pm
4. Daily or event based rebalancing.
Congratulation on another job.

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Re: "Steelmanning" the case for owning individual stocks

Post by arcticpineapplecorp. » Thu Jun 13, 2019 5:49 pm

Rick Ferri has described the investor's eductional endeavors to generally follow the following path (viewtopic.php?t=250534) :
A successful index fund investor goes through four phases:
1) Darkness - takes advice from everyone;
2) Enlightenment - realizes a market return is superior to their return;
3) Complexity - overdoing everything to find optimal;
4) Simplicity - invests in a few total market funds

source: https://twitter.com/rick_ferri/status/9 ... 89?lang=en
I'd say you're in phase 3 now. What say you?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: "Steelmanning" the case for owning individual stocks

Post by TropikThunder » Thu Jun 13, 2019 6:15 pm

hdas wrote:
Thu Jun 13, 2019 6:02 pm
arcticpineapplecorp. wrote:
Thu Jun 13, 2019 5:49 pm
Rick Ferri has described the investor's eductional endeavors to generally follow the following path (viewtopic.php?t=250534) :
A successful index fund investor goes through four phases:
1) Darkness - takes advice from everyone;
2) Enlightenment - realizes a market return is superior to their return;
3) Complexity - overdoing everything to find optimal;
4) Simplicity - invests in a few total market funds

source: https://twitter.com/rick_ferri/status/9 ... 89?lang=en
I'd say you're in phase 3 now. What say you?
Sure, do you prefer 3.38% with a 7% drawdown or 6.20% with a 1.8 drawdown? :greedy
I prefer to wait longer than three months before claiming victory.

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Re: "Steelmanning" the case for owning individual stocks

Post by corn18 » Thu Jun 13, 2019 6:35 pm

Did you buy any AQR?
Don't do something, just stand there!

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Re: "Steelmanning" the case for owning individual stocks

Post by willthrill81 » Fri Jul 05, 2019 10:31 pm

If you're going to go down this path, you might want to consider implementing a volatility targeting approach with a portion of your portfolio.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Steelmanning" the case for owning individual stocks

Post by willthrill81 » Fri Jul 05, 2019 10:57 pm

hdas wrote:
Fri Jul 05, 2019 10:44 pm
willthrill81 wrote:
Fri Jul 05, 2019 10:31 pm
If you're going to go down this path, you might want to consider implementing a volatility targeting approach with a portion of your portfolio.
Yes, I’d like to use leverage at some point but I don’t have access to cheap rates. I’m using Merrill, I have private banking privileges but still rates are not low enough. :greedy
No leverage is needed to implement volatility targeting.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Steelmanning" the case for owning individual stocks

Post by MoneyMarathon » Sat Jul 06, 2019 1:48 am

hdas wrote:
Sat May 18, 2019 12:37 pm
Controlling for quality is the easiest and index providers do the work for you.

It's remarkable the level of diversification you can achieve with only 25 holdings.
What are your holdings? And how did you choose them?

I can't really tell from your updates whether you're holding individual stocks, or are using ETFs... and what they are.

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Re: "Steelmanning" the case for owning individual stocks

Post by rossington » Sat Jul 06, 2019 4:50 am

Not sure where the OP is going here but: Investing in individual stocks is what was the norm prior to mutual/index funds. Investors made money the "old fashioned way" and did it with the principle of buy and hold that our beloved Jack Bogle espoused...Hence the foundation of Vanguard. All stock funds either active or index invest in individual stocks across specific criteria. It is the quality of these companies and their management that we rely on for our ROI. I learned how to invest (from my father) by doing research on individual stocks. We minimized our risk by buying the best quality stocks that fit our investment goals (Value Line as a research tool back in the day was our Bible...no computers or backtesting available). It has worked out very well ( '70's till now). You are your own fiduciary do the research...investing in ETF's or index/mutual funds can be as complicated as ind. stocks today but all will be rewarding with an asset allocation and risk tolerance that you need to achieve your goals.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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StandingRock
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Re: "Steelmanning" the case for owning individual stocks

Post by StandingRock » Sat Jul 06, 2019 8:47 am

If you have to invent words to make an argument you're probably wrong.

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Re: "Steelmanning" the case for owning individual stocks

Post by willthrill81 » Sat Jul 06, 2019 9:03 am

hdas wrote:
Sat Jul 06, 2019 9:01 am
willthrill81 wrote:
Fri Jul 05, 2019 10:57 pm
hdas wrote:
Fri Jul 05, 2019 10:44 pm
willthrill81 wrote:
Fri Jul 05, 2019 10:31 pm
If you're going to go down this path, you might want to consider implementing a volatility targeting approach with a portion of your portfolio.
Yes, I’d like to use leverage at some point but I don’t have access to cheap rates. I’m using Merrill, I have private banking privileges but still rates are not low enough. :greedy
No leverage is needed to implement volatility targeting.
In my case it is because in this portfolio low vol is targeted from security selection and portfolio optimization. I already have extremely low volatility, the next logical step is to lever up. :greedy
Ah, I see.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Steelmanning" the case for owning individual stocks

Post by Caduceus » Sat Jul 13, 2019 4:49 pm

The idea of basing an investment strategy on a stock's volatility is absurd. At the end of the day, a stock represents fractional ownership in a company, and it is that company's fundamental business performance and future prospects that will determine the stock's long term price. If the company gets more valuable, the stock will become more valuable, and if the company flounders, the stock will as well.

If you want to go this route, I suggest looking at people who have actually done very well over long periods of time. Warren Buffett is a billionaire, as is Seth Klarman. The Wall Street traders who do things like "low-vol stocks" might be multi-millionaires, but they have not enjoyed a tiny fraction of the success of investors who are value investors.

Why not learn some accounting, actually read financial statements, start with very simple businesses, and see if you can understand them?

I suggest the shareholder letters of Warren Buffett. Take a look at his early investments. He once bought a company that was selling for less than the price of its stock portfolio. This was a company that was in the business of making maps for insurance companies; it was a business where you make a map once and then you rarely have to update the map, and you get a stream of royalty on your intellectual property. The firm also owned many stocks, and the market was valuing the entire firm at less than the value of the stock portfolio. So you could have bought up the firm, sold the stocks, made a profit, and then got the map business for free. Of course you are going to get very, very, very rich if you can find positions like that. But they are hard to find.

Investing is not a mathematical or a statistical problem, and attempting to use math to improve returns is slightly south of idiotic. We are not talking about a world that is regulated by laws of physics so there is no reason that math beyond basic arithmetic should have any sway here. What you need are skills to evaluate the value of a business, the same way that say, a small business owner attempting to sell his firm will have to value his firm. If I have a business that has made 10 million a year the last ten years and I'm carrying no debt, the fair market value might be something like 100-200 million a year; if the stock market offers you a fractional interest at 50 million, you buy the business. Do it often enough, you make a lot of money. What's difficult is that financial statements LIE all the time. Firms include things in earnings that don't belong there; they shift earnings around; they buy back stocks, etc. This is a more productive route if you want to improve returns.

Just because you are strong in math doesn't mean it is the right tool. You might be a gifted dentist. Doesn't mean you are gonna be a good investor. A dentist probably has more relevant skills than the type of math you are trying to apply. You want to get rich? Learn accounting.

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Re: "Steelmanning" the case for owning individual stocks

Post by CyclingDuo » Mon Jul 15, 2019 6:47 am

hdas wrote:
Tue Jan 29, 2019 12:48 pm
I found the wiki section very good.
Yes, it's very good portion of the Wiki to study. If you want to passively hold a DIY index fund made up of individual stocks, one can do very well. The studies and data presented are quite telling. Not many have the patience of longer term buy and hold of a broad, diverse portfolio to "allow" a DIY index fund portfolio of individual stocks to be successful.

From the Wiki link....

Ikenberry, Shockley and Womack

They found that for 35-stock portfolios, where the stocks are randomly chosen from the S&P 500 index and equally weighted, the average yearly median portfolio return lags the mean by 0.22%. This number goes down to 0.14% for 50-stock portfolios, 0.09% for 75-stock portfolios, 0.06% for 100-stock portfolios, and 0.03% for 150-stock portfolios. The skewness cost is somewhat lower for capitalization-weighted portfolios, and for equal-weighted portfolios where the probability of selecting a stock is proportional to its market capitalization.


So they say.

I can see that having no ER fees can make up any, if not all of the skew in an equally weighted, randomly chosen portfolio holding 75-150 stocks compared to the S&P 500 index. In most cases, it is probably a lot easier to just buy the index fund at that point than purchasing 100-150 individual stocks and making sure it was equally weighted. However, for those who have the patience and enough capital to spread through that many individual stocks, sectors, factors - the path to success is laid out to do it.

Obviously, the location of the individual stocks is also important for tax strategies (REITs in tax advantaged and or Roth accounts, etc....). When on auto-pilot (DRIPs) and being passive with the DIY index portfolio, it's a rather low maintenance proposition in terms of not taking up any time throughout your year once you get it all allocated and set up. Again - not many have the patience of longer term buy and hold to "allow" a DIY portfolio to be successful. In this case, successful would be matching the return of the an index fund on the equity side of the portfolio. There is a lot of room for behavioral finance mistakes to upsot the apple cart when dealing with a portfolio made up of individual stocks covering 75-150 companies. Patience and the ability to watch paint dry for years at a time is required... 8-)
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: "Steelmanning" the case for owning individual stocks

Post by Alex GR » Mon Jul 15, 2019 9:22 am

Caduceus wrote:
Sat Jul 13, 2019 4:49 pm
The idea of basing an investment strategy on a stock's volatility is absurd. At the end of the day, a stock represents fractional ownership in a company, and it is that company's fundamental business performance and future prospects that will determine the stock's long term price. If the company gets more valuable, the stock will become more valuable, and if the company flounders, the stock will as well.

If you want to go this route, I suggest looking at people who have actually done very well over long periods of time. Warren Buffett is a billionaire, as is Seth Klarman. The Wall Street traders who do things like "low-vol stocks" might be multi-millionaires, but they have not enjoyed a tiny fraction of the success of investors who are value investors.

Why not learn some accounting, actually read financial statements, start with very simple businesses, and see if you can understand them?

I suggest the shareholder letters of Warren Buffett. Take a look at his early investments. He once bought a company that was selling for less than the price of its stock portfolio. This was a company that was in the business of making maps for insurance companies; it was a business where you make a map once and then you rarely have to update the map, and you get a stream of royalty on your intellectual property. The firm also owned many stocks, and the market was valuing the entire firm at less than the value of the stock portfolio. So you could have bought up the firm, sold the stocks, made a profit, and then got the map business for free. Of course you are going to get very, very, very rich if you can find positions like that. But they are hard to find.

Investing is not a mathematical or a statistical problem, and attempting to use math to improve returns is slightly south of idiotic. We are not talking about a world that is regulated by laws of physics so there is no reason that math beyond basic arithmetic should have any sway here. What you need are skills to evaluate the value of a business, the same way that say, a small business owner attempting to sell his firm will have to value his firm. If I have a business that has made 10 million a year the last ten years and I'm carrying no debt, the fair market value might be something like 100-200 million a year; if the stock market offers you a fractional interest at 50 million, you buy the business. Do it often enough, you make a lot of money. What's difficult is that financial statements LIE all the time. Firms include things in earnings that don't belong there; they shift earnings around; they buy back stocks, etc. This is a more productive route if you want to improve returns.

Just because you are strong in math doesn't mean it is the right tool. You might be a gifted dentist. Doesn't mean you are gonna be a good investor. A dentist probably has more relevant skills than the type of math you are trying to apply. You want to get rich? Learn accounting.
Hi Caduceus,
I fully agree with you in that value investing is the way to go. Seems like buying and selling stocks based on volatility and various mathematical statistics works... until it doesn't.

However since most people are not qualified to pick stocks themselves, what about this approach:
(a combination of holding long-term value stocks and having your own "system")

1. Find a source (or several) that has consistently been successful at factor investing. Example: MTUM.
Question: When they make a change to their holdings is this info available immediately? I really don't know. Do we know the date the buy/sell and the purchase price?
Visa Inc. Class A 5.15%
Mastercard Incorporated Class A 5.14%
Microsoft Corporation 5.06%
Procter & Gamble Company 4.98%
Walt Disney Company 4.31%
Cisco Systems, Inc. 3.83%
Comcast Corporation Class A 2.91%
Merck & Co., Inc. 2.63%
PayPal Holdings Inc 2.62%

etc.

2. Come up with a short list of stocks that match your criteria. Perhaps factor in P/E ratios and dividends into the formula and narrow the list down further. To do this successfully one would need to learn fundamental analysis as you're suggesting.

3. Put in orders to buy the stocks that made it to the final list at 5%-10%(or varying percentages based on some criteria) less than the price your "trusted" fund(s) paid for them.
Of course in most cases it won't happen but 1-2 will go through which means you bought stock you want to own anyway at a discount. You can get creative and make a rule that you sell 1/2 if it goes back to the "target" price that your "trusted fund" paid for it, etc.

Seems this would work for someone who is relatively inexperienced and doesn't know how to do the advanced analysis OP is describing but wants to get a piece of the action and follow a simple system. :greedy

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Alex GR
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Re: "Steelmanning" the case for owning individual stocks

Post by Alex GR » Mon Jul 15, 2019 10:05 am

hdas, thanks for your reply
Watching your work very closely, please keep us posted.
I don't understand some of it but in general I really like the idea of following some type of "system" and active trading for ~5% of my portfolio.
Sounds like you're a programmer with very strong experience in data analysis.
No idea what you said in your last sentence but all I was trying to do is come up with a simple system that someone who doesn't have your skills can follow.
In layman's terms, can you explain what's wrong with the idea I posted? Seems like it would allow you to buy stocks you want to own anyway but with a further discount, improving your bottom line.
The idea is to only do this with stocks you want to hold long-term anyway (like the ones in my example) so you can't lose (or you can but you keep telling yourself that you can't 'cause otherwise you would have bought it 5% higher :mrgreen:)

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Taylor Larimore
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Re: "Steelmanning" the case for owning individual stocks

Post by Taylor Larimore » Mon Jul 15, 2019 11:45 am

I'm looking forward to hear the best arguments against embarking in this effort, specifically about the desirability of the strategy features and the tax situation.
hdis:

This is 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%). Holding one individual stock can be very risky!"

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."

Michael Batnick, CFA: "Ordinary investors would be well served if they thought for a second about who they were transacting with. Over 90% of today’s volume is done by institutions, so chances are that your counter-party has done their homework."

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.

Charlie Munger, Warren Buffett's partner: "Teaching young people to actively trade stocks is like starting them on heroin."

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
Jack Bogle's Words of Wisdom: "A broker has to sell you something or he doesn't eat at the end of the day."
"Simplicity is the master key to financial success." -- Jack Bogle

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MoneyMarathon
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Re: "Steelmanning" the case for owning individual stocks

Post by MoneyMarathon » Wed Aug 07, 2019 2:43 pm

hdas wrote:
Sat Jul 13, 2019 11:11 am
However, the portfolio is trailing the performance of a naive 50/50 MTUM, USMV benchmark by ~1.5%.
Have you considered switching to 50% MTUM / 50% USMV ... have you been tempted at least?

That does sound like a nice, lazy way to get some of the risk exposures you're looking for... or maybe something slightly better, even.

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