Rethinking Individual Stocks

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DonCamillo
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Rethinking Individual Stocks

Post by DonCamillo » Sat May 25, 2019 11:57 am

Before I became an Index Investor, I mainly invested in dividend champions. Now that I have been retired a couple of years, I really appreciate my remaining individual stocks. I preferred to invest in publicly visible stocks, so that I could see a CSX train or a Waste Management or Sysco truck on the highway and think; “They are working for me!”

What I love about my individual stocks is Tax Loss Harvesting. While most of my individual stocks are up in value, some have gone down. I have to worry about exceeding the Medicare MAGA when I need extra income. But with tax loss harvesting, I can sell a blend of stocks with losses and gains so that I have no net gain for tax purposes.

So while I am a real fan of index investing for my Roth and Deferred Income accounts, I think a mix of individual stocks in taxable accounts is worthwhile.

My circumstances may be unusual. I oversaved when working, for example putting 100% of salary in tax deferred accounts after turning 70, and living on Social Security, pensions, and dividends. The end result was that when I retired at 71 1/2, my disposable income tripled. Since them we have spent most of our time traveling, visiting over 30 countries in the past two and a half years, including taking 4 trans-Atlantic and one trans-Pacific cruises. That is very hard to do while keeping your Medicare MAGA under $164,000, but tax loss harvesting made it possible.

To avoid overspending, I manage my spending by only using growth in one of my two taxable accounts for travel. My Roth and Deferred accounts, about 2/3rds of my investments, have continued to grow faster than my minimum required distribution. About 1/4 of my accounts are in Vanguard Index Funds. On those, I just take my MRD in January by moving it from my IRA to a taxable account in the same fund. I do not spend from those accounts.

Conclusion: Investing some of your money in individual stocks makes sense. Does anyone care to provide a counter argument?
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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Stinky
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Re: Rethinking Individual Stocks

Post by Stinky » Sat May 25, 2019 12:08 pm

DonCamillo wrote:
Sat May 25, 2019 11:57 am

My circumstances may be unusual.
You can say that again!

Congratulations on getting to a great place in retirement. Lots of freedom, both financial and personal. Many folks would happily trade places with you.

Given your situation, I don’t have any problems with your approach. Happy that it works for you.
It's a GREAT day to be alive - Travis Tritt

straws46
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Re: Rethinking Individual Stocks

Post by straws46 » Sat May 25, 2019 12:18 pm

Agree with Stinky. Individual stocks are for those whose other assets, or other income, are sufficient to permit the greater risk that goes with owning individual equities. The biggest risk for me is having such a low basis in individual stocks that tax considerations override prudent investment decisions. The tail (taxes) shouldn't wag the dog (prudent investment decision), but it often does.

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JoMoney
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Re: Rethinking Individual Stocks

Post by JoMoney » Sat May 25, 2019 12:33 pm

Am I missing something?
I didn't see (or understand) how owning individual stocks made any difference relative to owning a mutual/index fund.

I did see the part about preferring to invest in publicly visible companies, I actually did the same when I had an individual stock portfolio and found it induced some weird behavioral problems falling in love with certain "brands" or even making purchases of a branded product that was more expensive (or I didn't like as much) because I owned the stock. With an index fund came broader diversification owning multiple competing companies, and the veil of not really knowing all of the holdings all the time.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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nedsaid
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Re: Rethinking Individual Stocks

Post by nedsaid » Sat May 25, 2019 1:05 pm

DonCamillo wrote:
Sat May 25, 2019 11:57 am
Before I became an Index Investor, I mainly invested in dividend champions. Now that I have been retired a couple of years, I really appreciate my remaining individual stocks. I preferred to invest in publicly visible stocks, so that I could see a CSX train or a Waste Management or Sysco truck on the highway and think; “They are working for me!”

What I love about my individual stocks is Tax Loss Harvesting. While most of my individual stocks are up in value, some have gone down. I have to worry about exceeding the Medicare MAGA when I need extra income. But with tax loss harvesting, I can sell a blend of stocks with losses and gains so that I have no net gain for tax purposes.

So while I am a real fan of index investing for my Roth and Deferred Income accounts, I think a mix of individual stocks in taxable accounts is worthwhile.

My circumstances may be unusual. I oversaved when working, for example putting 100% of salary in tax deferred accounts after turning 70, and living on Social Security, pensions, and dividends. The end result was that when I retired at 71 1/2, my disposable income tripled. Since them we have spent most of our time traveling, visiting over 30 countries in the past two and a half years, including taking 4 trans-Atlantic and one trans-Pacific cruises. That is very hard to do while keeping your Medicare MAGA under $164,000, but tax loss harvesting made it possible.

To avoid overspending, I manage my spending by only using growth in one of my two taxable accounts for travel. My Roth and Deferred accounts, about 2/3rds of my investments, have continued to grow faster than my minimum required distribution. About 1/4 of my accounts are in Vanguard Index Funds. On those, I just take my MRD in January by moving it from my IRA to a taxable account in the same fund. I do not spend from those accounts.

Conclusion: Investing some of your money in individual stocks makes sense. Does anyone care to provide a counter argument?
Hi Don:

Congratulations. You have done a great job preparing for retirement and whatever you did worked well for you. I too own individual stocks but they reside mostly all in tax deferred accounts so I don't have so much concern about such things as tax loss selling.

What I would say is that there is benefit to tax loss selling and that is easier with individual stocks than with the broad index funds. But I would still say that though you and I both had some success with individual stocks, I would not recommend this route for newer investors who should stick to the broad indexes.

But anywho, you have done well and congratulations on a job well done.

Best wishes,

Ned
A fool and his money are good for business.

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Nicolas
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Re: Rethinking Individual Stocks

Post by Nicolas » Sat May 25, 2019 1:12 pm

DonCamillo wrote:
Sat May 25, 2019 11:57 am
Before I became an Index Investor, I mainly invested in dividend champions. Now that I have been retired a couple of years, I really appreciate my remaining individual stocks. I preferred to invest in publicly visible stocks, so that I could see a CSX train or a Waste Management or Sysco truck on the highway and think; “They are working for me!”

What I love about my individual stocks is Tax Loss Harvesting. While most of my individual stocks are up in value, some have gone down. I have to worry about exceeding the Medicare MAGA when I need extra income. But with tax loss harvesting, I can sell a blend of stocks with losses and gains so that I have no net gain for tax purposes.

So while I am a real fan of index investing for my Roth and Deferred Income accounts, I think a mix of individual stocks in taxable accounts is worthwhile.

My circumstances may be unusual. I oversaved when working, for example putting 100% of salary in tax deferred accounts after turning 70, and living on Social Security, pensions, and dividends. The end result was that when I retired at 71 1/2, my disposable income tripled. Since them we have spent most of our time traveling, visiting over 30 countries in the past two and a half years, including taking 4 trans-Atlantic and one trans-Pacific cruises. That is very hard to do while keeping your Medicare MAGA under $164,000, but tax loss harvesting made it possible.

To avoid overspending, I manage my spending by only using growth in one of my two taxable accounts for travel. My Roth and Deferred accounts, about 2/3rds of my investments, have continued to grow faster than my minimum required distribution. About 1/4 of my accounts are in Vanguard Index Funds. On those, I just take my MRD in January by moving it from my IRA to a taxable account in the same fund. I do not spend from those accounts.

Conclusion: Investing some of your money in individual stocks makes sense. Does anyone care to provide a counter argument?
Shouldn’t that be MAGI, Modified Adjusted Gross Income?
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Re: Rethinking Individual Stocks

Post by HomeStretch » Sat May 25, 2019 1:27 pm

We are reducing our individual stock holdings prior to retirement in order to better manage income to qualify for ACA premium subsidies until we are eligible for Medicare.

We realized we wanted to reduce individual stock holdings last year when one of the companies we held stock in was unexpectedly merged. The resulting 6-figure income would have put us over the ACA-cliff if retired even with TLH at year-end.

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arcticpineapplecorp.
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Re: Rethinking Individual Stocks

Post by arcticpineapplecorp. » Sat May 25, 2019 1:33 pm

I respectfully disagree. Here are my reasons:

1. you should not confuse outcome with strategy. Because things worked out for you, doesn't make it a recommended strategy for others. You got lucky, others might not. Individual stocks can and do go to zero. Where would you be if you were unlucky rather than lucky? Only 4% of all individual stocks created all the value of the stock market back to 1926. Meanwhile half of all individual stocks did worse than a no-risk treasury bill. source:
https://www.google.com/search?client=fi ... +bills+pdf

2. While you make the argument for the value of tax loss harvesting, this can just as easily be done with a diversified total market index fund. You don't need to invest in individual stocks to get the benefit of tax loss harvesting. Tax loss harvesting is definitely a benefit of investing in a taxable account, but that holds true of any stocks or volatile assets you own in a taxable account. It isn't only available if you own individual stocks. What's more, the benefits of tax loss harvesting are not always available especially in long up markets. As wealthfront themselves have wrote on 1/9/19,
As a matter of fact, we did more harvesting in the last year than at any time in our six years of offering the capability."

source: https://blog.wealthfront.com/real-value ... arvesting/
3. You're taking on idiosyncratic risk by owning individual stocks that you eliminate when you own the market. The only risk you're left with when owning the market is market risk. You reduce that by holding bonds. But why take sector, style, size, country, manager and stock risk when you can diversify those away? William Sharpe once said like in real estate the three most important things are location, location, location...with investing the three most important things are diversification, diversification and diversification.

4. How many "publicly visible stocks" can you possibly own individually? I own 10,000 of them. So whether I see some csx train or waste management truck (or thousands of other companies) I can say, yeah I own them too. And I have 10,000 companies "working for me". How many do you have with your individual stocks?

5. stocks may be good in a taxable account as you say, but why would you want to put "dividend champions" in a taxable account? You're increasing your taxable income. The benefit of stocks in taxable accounts is avoiding taxes by holding tax efficient stocks in a taxable account. Think about Berkshire and other companies that didn't pay dividends. If you sold those stocks you'd probably pay capital gains rates which are much more favorable than ordinary income on dividends. So I think you have it backwards, you want tax efficiency, not something that throws off lots of income as in the case of "dividend champions" or bonds that might throw off more income.

6. The individual stocks you own could be donated and provide a tax deduction. You didn't mention that, but that's often what many do, especially those who don't need the stocks to sell to live on.

Those are a few thoughts off the top of my head. Thoughts?
"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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arcticpineapplecorp.
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Re: Rethinking Individual Stocks

Post by arcticpineapplecorp. » Sat May 25, 2019 2:18 pm

just read this article...Warren Buffett has just about given up on beating the S&P500 index. Reasons why are explained in the article:

https://www.marketwatch.com/story/warre ... yptr=yahoo

He doesn't recommend individuals buy individual stocks because:
“I think it’s [the S&P 500 index] the best investment — because most people don’t know how to pick stocks. And — most of the time I don’t know how to pick stocks,” Buffett told CNBC.

source: https://www.cnbc.com/2019/04/25/buffett ... shire.html
Think you're better than Buffett?

If so, why aren't you running a hedge fund or holding company?

If not, why are you doing what you do, knowing you're likely to underperform the S&P500 index?
"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: Rethinking Individual Stocks

Post by vineviz » Sat May 25, 2019 2:40 pm

JoMoney wrote:
Sat May 25, 2019 12:33 pm
Am I missing something?
I didn't see (or understand) how owning individual stocks made any difference relative to owning a mutual/index fund.
+1

I guess I missed that part too.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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DonCamillo
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Re: Rethinking Individual Stocks

Post by DonCamillo » Sat May 25, 2019 2:59 pm

Nicolas wrote:
Sat May 25, 2019 1:12 pm
Shouldn’t that be MAGI, Modified Adjusted Gross Income?
Yes, thanks for correction
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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nedsaid
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Re: Rethinking Individual Stocks

Post by nedsaid » Sat May 25, 2019 3:06 pm

DonCamillo wrote:
Sat May 25, 2019 2:59 pm
Nicolas wrote:
Sat May 25, 2019 1:12 pm
Shouldn’t that be MAGI, Modified Adjusted Gross Income?
Yes, thanks for correction
Was that a Freudian slip? :wink:
A fool and his money are good for business.

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DonCamillo
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Re: Rethinking Individual Stocks

Post by DonCamillo » Sat May 25, 2019 3:08 pm

vineviz wrote:
Sat May 25, 2019 2:40 pm
JoMoney wrote:
Sat May 25, 2019 12:33 pm
Am I missing something?
I didn't see (or understand) how owning individual stocks made any difference relative to owning a mutual/index fund.
+1

I guess I missed that part too.
With individual stocks, some went up, some went down. For example, if I need $40,000 for a cruise, I can sell two stocks that I bought for $20,000 each. One went down and is worth $10,000 now. The other went up and is worth $30,000 now. My net capital gain is $0. If I had sold any of my index funds, I would have had a reportable capital gain PLUS I would also be paying twice as much in Medicare premiums from now on.

All of my index funds and most of my individual stocks are worth far more than I paid for them, because I have been investing many years. The losers are scarce, but really help out in these circumstances.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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vineviz
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Re: Rethinking Individual Stocks

Post by vineviz » Sat May 25, 2019 3:13 pm

DonCamillo wrote:
Sat May 25, 2019 3:08 pm
vineviz wrote:
Sat May 25, 2019 2:40 pm
JoMoney wrote:
Sat May 25, 2019 12:33 pm
Am I missing something?
I didn't see (or understand) how owning individual stocks made any difference relative to owning a mutual/index fund.
+1

I guess I missed that part too.
With individual stocks, some went up, some went down. For example, if I need $40,000 for a cruise, I can sell two stocks that I bought for $20,000 each. One went down and is worth $10,000 now. The other went up and is worth $30,000 now. My net capital gain is $0. If I had sold any of my index funds, I would have had a reportable capital gain PLUS I would also be paying twice as much in Medicare premiums from now on.

All of my index funds and most of my individual stocks are worth far more than I paid for them, because I have been investing many years. The losers are scarce, but really help out in these circumstances.
Last I checked, 80% of a gain more than 100% of a loss. To each their own, i suppose.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

NotWhoYouThink
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Re: Rethinking Individual Stocks

Post by NotWhoYouThink » Sat May 25, 2019 3:14 pm

No serious person argues that no one has succeeded, or can succeed, with individual stocks. There are plenty of counter-examples, so of course owning individual stocks can work.

The argument for indexing is that owning individual stocks is riskier - you could have extreme high performance, or you could crash. Enron. Qualcom. GE lately.

A combination of high savings rate and lucky choices for individual stocks worked for you, congratulations. That doesn't change my plan or my recommendation to keep investments in index funds. Which, so far, has worked nicely for me and many others. Less volatility and less risk.

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Re: Rethinking Individual Stocks

Post by DonCamillo » Sat May 25, 2019 3:20 pm

arcticpineapplecorp. wrote:
Sat May 25, 2019 2:18 pm
Think you're better than Buffett?

If not, why are you doing what you do, knowing you're likely to underperform the S&P500 index?
Admire Buffet, and am aware that 1) He has recommended Index funds for years and 2) He hasn’t done that well lately.

But my individual stocks were purchased before I became an index investor. I didn’t sell them because I didn’t want to take the capital gain. My habit was to buy enough stock in each company to get $2,000 a year ($5 a day) in dividends. Back then, the market was yielding about 4%, so I averaged $50,000 in each stock. I have been selling them off when I have enough losses because I want to avoid the dividend income. I still have about 10 such stocks left. My losers were mostly BBL and GE. But I don’t have nearly enough losses to sell them all. But they do come in handy when I need money that won’t be taxed.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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Wiggums
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Re: Rethinking Individual Stocks

Post by Wiggums » Sat May 25, 2019 3:25 pm

Congratulations on winning the game and your fabulous trips.

For what it’s worth, I do not have any individual stocks any longer.

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Stinky
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Re: Rethinking Individual Stocks

Post by Stinky » Sat May 25, 2019 4:18 pm

DonCamillo wrote:
Sat May 25, 2019 3:08 pm

With individual stocks, some went up, some went down. For example, if I need $40,000 for a cruise, I can sell two stocks that I bought for $20,000 each. One went down and is worth $10,000 now. The other went up and is worth $30,000 now. My net capital gain is $0. If I had sold any of my index funds, I would have had a reportable capital gain PLUS I would also be paying twice as much in Medicare premiums from now on.

All of my index funds and most of my individual stocks are worth far more than I paid for them, because I have been investing many years. The losers are scarce, but really help out in these circumstances.
Because of this, and because of your otherwise very strong financial condition, I'm ok with the individual stock strategy.

But your case is pretty special. Lots of folks have been burned by individual stock holdings.
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sc9182
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Re: Rethinking Individual Stocks

Post by sc9182 » Sat May 25, 2019 5:03 pm

Not going to discuss much about individual vs index holdings - let this point be over analyzed by Bogle-lords.

In your case, when you started off with 10+ stocks (would it be possibly 15-20 holdings at its peak?) - you may have created/managed a mini index of your own. Is this/your index sufficiently diversified (I dunno), but if it is, you may have mimicked a mini DOW like index returns (and risks/pattern).

In addition - you may have multiple tax lots (?), this having varying amounts of gains (and some losses) to tax neutralize your sales. This holdings & lot ‘granularity, sure would help with your tax minimization efforts.

Hope your overall returns were in-line with larger indexes, if not, your tax minimization would have been washed out in diminished returns. It appears your returns have been decent (some luck!).

Good luck on your this specific scenario success, but hard to replicate universally. Besides you could risk this, because your financial needs are mostly covered (backstopped) by other possible means.

With that backdrop, yes it has some merits. There have been some recent threads on index mimicking on your own (to minimize costs, and also do tax lot harvesting etc tax optimization)

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Re: Rethinking Individual Stocks

Post by DonCamillo » Sat May 25, 2019 5:03 pm

nedsaid wrote:
Sat May 25, 2019 3:06 pm
DonCamillo wrote:
Sat May 25, 2019 2:59 pm
Nicolas wrote:
Sat May 25, 2019 1:12 pm
Shouldn’t that be MAGI, Modified Adjusted Gross Income?
Yes, thanks for correction
Was that a Freudian slip? :wink:
Just realized that MAGA was the Trump slogan. LOL! On our cruise from LA to Sydney in February, one of our guest lecturers was Lt Cdr Roger Cartwright, RN. He has published several books on History. During a lecture on part of US history, he displayed a picture of the trademark red baseball cap, but he changed the slogan to read “Make America Great Britain Again”. :oops:
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Re: Rethinking Individual Stocks

Post by DonCamillo » Sat May 25, 2019 5:16 pm

sc9182 wrote:
Sat May 25, 2019 5:03 pm
In your case, when you started off with 10+ stocks (would it be possibly 15-20 holdings at its peak?) - you may have created/managed a mini index of your own. Is this/your index sufficiently diversified (I dunno), but if it is, you may have mimicked a mini DOW like index returns (and risks/pattern).

Unfortunately, dividend stocks tend to be value stocks, so I was not diversified.

In addition - you may have multiple tax lots (?), this having varying amounts of gains (and some losses) to tax neutralize your sales. This holdings & lot ‘granularity, sure would help with your tax minimization efforts.

The individual tax lots were a HUGE help!

Hope your overall returns were in-line with larger indexes, if not, your tax minimization would have been washed out in diminished returns. It appears your returns have been decent (some luck!).

I was lucky. Got 3M at a good time, and it was a large part of my profit. Although a few stocks went up and down early on, only GE and BBL were down significantly. And I did pretty well on them anyway. Besides the dividends from them, I was regularly writing covered calls on them. Much of the time I had the call price set to my original cost, so I didn’t care if they sold. A few years ago, any time I needed an extra $500, I would write a BBL covered call.
Don’t write calls anymore. Can’t afford the extra taxable income.
Last edited by DonCamillo on Sat May 25, 2019 5:21 pm, edited 1 time in total.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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Re: Rethinking Individual Stocks

Post by Wakefield1 » Sat May 25, 2019 5:16 pm

At the present time,if you buy mutual fund shares from such as Vanguard or T. Rowe Price,does the fund company make it easier for you to keep track of the "basis" (as defined by IRS) than if you buy individual stock shares?

BGG not looking so good around the gills? In more ways than just the stock price?
Less than .5% of my worth but they made some of my favorite toys starting 55 or so years ago
the other big "toy" company already failed a few years ago (made the engines on Craftsman mowers)

Seems I remember Mr. Bogle warning (when I encountered him) specifically against "drips" (where your dividend automatically invests into more shares of the same stock,guaranteeing that if the stock goes to @#$#@ then you have nothing
got rid of all my "drips" after that except for that one

yes would have been better to have started with mutual funds from the get go and less papers to lose
but for someone who already has decent financial security I don't think there would be anything wrong with having a few stock shares

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DonCamillo
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Re: Rethinking Individual Stocks

Post by DonCamillo » Sat May 25, 2019 5:30 pm

Wakefield1 wrote:
Sat May 25, 2019 5:16 pm
At the present time,if you buy mutual fund shares from such as Vanguard or T. Rowe Price,does the fund company make it easier for you to keep track of the "basis" (as defined by IRS) than if you buy individual stock shares?
That is more the company and their Web site, not funds vs stocks. Vanguard is OK with basis tracking, but since my dividends are reinvested, too many lots make it a nightmare to track.

Fidelity makes it extremely easy to select lots to sell.

By the way, never use a DRIP in a taxable account. Did that in Pfizer for 30 years, and when I sold it, it was 14 pages on my schedule D(?) on my tax return. But in my Dividend champions days, I used the cash from the dividends to help buy the next stock. So I was not interested in DRIP.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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Nicolas
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Re: Rethinking Individual Stocks

Post by Nicolas » Sat May 25, 2019 6:04 pm

DonCamillo wrote:
Sat May 25, 2019 5:30 pm
Wakefield1 wrote:
Sat May 25, 2019 5:16 pm
At the present time,if you buy mutual fund shares from such as Vanguard or T. Rowe Price,does the fund company make it easier for you to keep track of the "basis" (as defined by IRS) than if you buy individual stock shares?
That is more the company and their Web site, not funds vs stocks. Vanguard is OK with basis tracking, but since my dividends are reinvested, too many lots make it a nightmare to track.

Fidelity makes it extremely easy to select lots to sell.

By the way, never use a DRIP in a taxable account. Did that in Pfizer for 30 years, and when I sold it, it was 14 pages on my schedule D(?) on my tax return. But in my Dividend champions days, I used the cash from the dividends to help buy the next stock. So I was not interested in DRIP.
It’s much easier now than 30 years ago. I use TurboTax and download my 1099s directly from my online broker. 14 pages of dividends becomes one line with purchase date of “various”. You don’t have to calculate anything, all gain/loss is presented to you as two consolidated numbers, short-term gain (or loss) and long-term gain (or loss) and TurboTax does all the work, it’s painless. Of course you do have to pay for TurboTax.
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Re: Rethinking Individual Stocks

Post by Spirit Rider » Sat May 25, 2019 6:26 pm

DonCamillo wrote:
Sat May 25, 2019 11:57 am
Conclusion: Investing some of your money in individual stocks makes sense. Does anyone care to provide a counter argument?
You have provided zero (0) justification. Absent any actual factual metrics comparing your returns to relevant benchmarks. Your conclusion has no legitimate basis. While it is possible for an individual to have returns >= than broad market index funds, it is exceedingly rare to happen over decades. Typically stock pickers share a trait with gamblers. They amplify their gains and and diminish their losses.

I know, I had a period of stock picking and was convinced of my above market returns. Until I decided to "prove" those above average returns. I had records of all purchases and reinvested dividends and to my great surprise, I trailed relevant benchmarks by a CAGR of 2% - 3%. I have yet to find anyone who claims superior long terms returns to be able to prove it by actually comparing their returns to relevant benchmarks. In every case, they either found they had inferior returns or refused or were unable to do an actual comparison.

It is pretty easy to claim; "hey, I have great returns from individual stock picking" when the market is up 300% over the last ten years. That doesn't mean you are not significantly under performing the market.

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nedsaid
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Re: Rethinking Individual Stocks

Post by nedsaid » Sat May 25, 2019 8:46 pm

DonCamillo wrote:
Sat May 25, 2019 5:03 pm
nedsaid wrote:
Sat May 25, 2019 3:06 pm
DonCamillo wrote:
Sat May 25, 2019 2:59 pm
Nicolas wrote:
Sat May 25, 2019 1:12 pm
Shouldn’t that be MAGI, Modified Adjusted Gross Income?
Yes, thanks for correction
Was that a Freudian slip? :wink:
Just realized that MAGA was the Trump slogan. LOL! On our cruise from LA to Sydney in February, one of our guest lecturers was Lt Cdr Roger Cartwright, RN. He has published several books on History. During a lecture on part of US history, he displayed a picture of the trademark red baseball cap, but he changed the slogan to read “Make America Great Britain Again”. :oops:
Glad you caught my point and got a good laugh out of it. And yes, we were quite unruly colonists. I would say the Empire was better off without us. But we did adapt the tune of "God Save The Queen" to "My Country 'Tis of Thee." I have been delighted that we have UK posters, Valuethinker for one, who instructs us upon proper investing. Not sure the Queen would take us back again even if we wanted to come back. We are a rather rowdy lot.
A fool and his money are good for business.

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Re: Rethinking Individual Stocks

Post by suemarkp » Sat May 25, 2019 11:25 pm

arcticpineapplecorp. wrote:
Sat May 25, 2019 1:33 pm
5. stocks may be good in a taxable account as you say, but why would you want to put "dividend champions" in a taxable account? You're increasing your taxable income. The benefit of stocks in taxable accounts is avoiding taxes by holding tax efficient stocks in a taxable account. Think about Berkshire and other companies that didn't pay dividends. If you sold those stocks you'd probably pay capital gains rates which are much more favorable than ordinary income on dividends. So I think you have it backwards, you want tax efficiency, not something that throws off lots of income as in the case of "dividend champions" or bonds that might throw off more income.
Aren't dividends taxed the same as Capital gains? I see the only drawback as having income when perhaps you don't need it. But it seems like it is still tax favored income so it should be better than an IRA withdraw.
Mark | Kent, WA

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Re: Rethinking Individual Stocks

Post by venkman » Sat May 25, 2019 11:34 pm

DonCamillo wrote:
Sat May 25, 2019 11:57 am
My circumstances may be unusual.

Conclusion: Investing some of your money in individual stocks makes sense. Does anyone care to provide a counter argument?
You already provided the counterargument to your generalized conclusion. :happy

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Re: Rethinking Individual Stocks

Post by arcticpineapplecorp. » Sun May 26, 2019 7:39 am

suemarkp wrote:
Sat May 25, 2019 11:25 pm
arcticpineapplecorp. wrote:
Sat May 25, 2019 1:33 pm
5. stocks may be good in a taxable account as you say, but why would you want to put "dividend champions" in a taxable account? You're increasing your taxable income. The benefit of stocks in taxable accounts is avoiding taxes by holding tax efficient stocks in a taxable account. Think about Berkshire and other companies that didn't pay dividends. If you sold those stocks you'd probably pay capital gains rates which are much more favorable than ordinary income on dividends. So I think you have it backwards, you want tax efficiency, not something that throws off lots of income as in the case of "dividend champions" or bonds that might throw off more income.
Aren't dividends taxed the same as Capital gains? I see the only drawback as having income when perhaps you don't need it. But it seems like it is still tax favored income so it should be better than an IRA withdraw.
ah, I see that now (https://www.bogleheads.org/wiki/Qualified_dividend). thanks for alerting me to that. But yes, you are right with cap gains you determine when you pay the tax, with dividends the stock paying out determines when you pay the tax.
"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: Rethinking Individual Stocks

Post by DonCamillo » Sun May 26, 2019 11:05 am

arcticpineapplecorp. wrote:
Sun May 26, 2019 7:39 am
ah, I see that now (https://www.bogleheads.org/wiki/Qualified_dividend). thanks for alerting me to that. But yes, you are right with cap gains you determine when you pay the tax, with dividends the stock paying out determines when you pay the tax.
I actually did my dividend champions investing before the Medicare MAGI existed. I was thinking in terms of income taxed preferentially from dividends instead of as ordinary income from IRAs during retirement. It was the possibility of being taxed 1000s of percent by having increased Medicare premiums that really scuttled that strategy. You need to be prepared to have your investment strategy changed overnight without warning.

As Will Rogers said; “...death and taxes are inevitable. But at least death doesn’t get worse every time the legislature meets.”
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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JoMoney
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Re: Rethinking Individual Stocks

Post by JoMoney » Sun May 26, 2019 11:14 am

DonCamillo wrote:
Sat May 25, 2019 11:57 am
...
What I love about my individual stocks is Tax Loss Harvesting. While most of my individual stocks are up in value, some have gone down. I have to worry about exceeding the Medicare MAGA when I need extra income. But with tax loss harvesting, I can sell a blend of stocks with losses and gains so that I have no net gain for tax purposes.
...
Conclusion: Investing some of your money in individual stocks makes sense. Does anyone care to provide a counter argument?
So if I'm understanding all of this, the conclusion that "individual stocks makes sense" is premised on the idea that you have a lot of them that lost money, and you can sell them at a loss along with others that have gained and net zero profit from the combined investment :confused :confused :confused
Pardon if I'm not enthusiastic at the prospects of that "investment".
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Rethinking Individual Stocks

Post by DonCamillo » Sun May 26, 2019 4:13 pm

[quote=JoMoney post_id=4562569 time=1558887287 user_id=46324
So if I'm understanding all of this, the conclusion that "individual stocks makes sense" is premised on the idea that you have a lot of them that lost money, and you can sell them at a loss along with others that have gained and net zero profit from the combined investment :confused :confused :confused
Pardon if I'm not enthusiastic at the prospects of that "investment".
[/quote]
Just like my index funds (75% of my investments), some of the stocks in the index go up, some go down.

What is nice about the individual stocks is that I can balance winners and losers to withdraw money without paying taxes or increasing my MAGI.

Or have you found an index fund where all of the component stocks only go up in value? I might be interested in that! :happy
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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Re: Rethinking Individual Stocks

Post by mhadden1 » Sun May 26, 2019 4:32 pm

I am too dumb to pick stocks. It must be nice to be one of the cool kids who is good at it.
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: Rethinking Individual Stocks

Post by Abe » Sun May 26, 2019 4:39 pm

I have a few individual stocks along with mutual funds, mostly index funds. While I agree that I am taking on more risk with the individual stocks, I have to say that most of my individual stocks have outperformed the total market for the last 10 years. Only one has underperformed, IBM.
Slow and steady wins the race.

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Re: Rethinking Individual Stocks

Post by DonCamillo » Sun May 26, 2019 4:50 pm

mhadden1 wrote:
Sun May 26, 2019 4:32 pm
I am too dumb to pick stocks. It must be nice to be one of the cool kids who is good at it.
I make no such claim. I still have some GE and BBL. For that reason, most of my investments are in index stocks.

But I would not have been able to enjoy as much traveling in the early years of my retirement without my individual stocks. Fortunately or unfortunately, I am running out of losers to balance my winners, and I really don’t want my taxable income to increase. But My wife and I are also getting to the point in our retirement that travel is more difficult. For example, I have trouble breathing at altitude, so we had to cross Macchu Picchu off our bucket list. So after two years of constant travel, we will be spending less.

About $20,000 in losses allowed me to pull $100,000 total out of my accounts without tax. An extra $50,000 a year made a big difference.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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Re: Rethinking Individual Stocks

Post by bhsince87 » Sun May 26, 2019 5:06 pm

arcticpineapplecorp. wrote:
Sat May 25, 2019 2:18 pm
just read this article...Warren Buffett has just about given up on beating the S&P500 index. Reasons why are explained in the article:

https://www.marketwatch.com/story/warre ... yptr=yahoo

He doesn't recommend individuals buy individual stocks because:
“I think it’s [the S&P 500 index] the best investment — because most people don’t know how to pick stocks. And — most of the time I don’t know how to pick stocks,” Buffett told CNBC.

source: https://www.cnbc.com/2019/04/25/buffett ... shire.html
Think you're better than Buffett?

If so, why aren't you running a hedge fund or holding company?

If not, why are you doing what you do, knowing you're likely to underperform the S&P500 index?
I've averaged over 16% per year returns through my individual stock purchases. Done it for 30 years. Currently own about 35 different companies.

But all of our 401k and IRA investments have been strict Boglehead funds. And I recommend funds to anyone who asks.

Your questions of "Think you're better than Buffet?" and "Why aren't you running a hedge fund?" are way off point.

I only have to manage $3-4 million of our OWN money. Buffet's problem is that he has to manage hundreds of billions of dollars. Totally different set of problems. Also why I don't run a hedge fund (although I've toyed with the idea. Seems like an easy way to extract money from other people).


And I don't have to worry about quarterly or yearly performance like hedge funds. In fact, I can take advantage of their short term outlook, since I'm playing a very long term game.
Retirement: When you reach a point where you have enough. Or when you've had enough.

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Re: Rethinking Individual Stocks

Post by goldendad » Sun May 26, 2019 5:20 pm

For about 6 years I have been using value blue chip individual stocks (and occasionally an ETF) to sell covered calls. Been earning around 8% to 9% per year. Been doing that some bond capital.

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Re: Rethinking Individual Stocks

Post by DonCamillo » Sun May 26, 2019 5:30 pm

goldendad wrote:
Sun May 26, 2019 5:20 pm
For about 6 years I have been using value blue chip individual stocks (and occasionally an ETF) to sell covered calls. Been earning around 8% to 9% per year. Been doing that some bond capital.
I was doing that for a few years, mostly with my two main losers, BBL and GE, and have probably made about as much money ($20,000) as I lost in those two stocks from the covered calls. But I had to watch the market several times a day to plan my sales and buybacks. Today, I prefer not to look at the market at all. I read my quarterly reports, try to figure out if I should sell something not performing well (answer is mostly no) and generally ignore the market.

Always liked Bogle’s suggestion to look at your stocks about once every 30 years.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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Re: Rethinking Individual Stocks

Post by arcticpineapplecorp. » Sun May 26, 2019 9:37 pm

bhsince87 wrote:
Sun May 26, 2019 5:06 pm
I've averaged over 16% per year returns through my individual stock purchases. Done it for 30 years. Currently own about 35 different companies.

But all of our 401k and IRA investments have been strict Boglehead funds. And I recommend funds to anyone who asks.
So you've gotten 16% for 30 years? Why bother at all with "strict Boglehead funds" at all? If you've done so well, aren't you missing out 16% annual gains on your 401k and IRA monies? That sounds like a lost opportunity there.
"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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JoMoney
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Re: Rethinking Individual Stocks

Post by JoMoney » Sun May 26, 2019 11:05 pm

arcticpineapplecorp. wrote:
Sun May 26, 2019 9:37 pm
bhsince87 wrote:
Sun May 26, 2019 5:06 pm
I've averaged over 16% per year returns through my individual stock purchases. Done it for 30 years. Currently own about 35 different companies.

But all of our 401k and IRA investments have been strict Boglehead funds. And I recommend funds to anyone who asks.
So you've gotten 16% for 30 years? Why bother at all with "strict Boglehead funds" at all? If you've done so well, aren't you missing out 16% annual gains on your 401k and IRA monies? That sounds like a lost opportunity there.
A lot of opportunity or a lot not disclosed in the numbers.
The market has averaged something close to 12% per year returns (arithmetic), but if you don't know the sequence of all the returns, or even the standard deviation, you don't know the whole story.
The "Beardstown Ladies" published a book about there 23% annual returns... later audited and discovered some mis-accounted for contributions...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Rethinking Individual Stocks

Post by bhsince87 » Sun May 26, 2019 11:24 pm

arcticpineapplecorp. wrote:
Sun May 26, 2019 9:37 pm
bhsince87 wrote:
Sun May 26, 2019 5:06 pm
I've averaged over 16% per year returns through my individual stock purchases. Done it for 30 years. Currently own about 35 different companies.

But all of our 401k and IRA investments have been strict Boglehead funds. And I recommend funds to anyone who asks.
So you've gotten 16% for 30 years? Why bother at all with "strict Boglehead funds" at all? If you've done so well, aren't you missing out 16% annual gains on your 401k and IRA monies? That sounds like a lost opportunity there.
Because I'm not greedy (too much, at least), or stupid.

The retirement funds are our life support.

The other accounts were for stretch goals, and luckily for us, they worked out. We would have been ok with 0% return there.
Retirement: When you reach a point where you have enough. Or when you've had enough.

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Re: Rethinking Individual Stocks

Post by SGM » Mon May 27, 2019 12:03 am

I continue to hold a few long held individual stocks because they have large very capital gains. I haven't had any capital losses in individual stocks for quite a few years. I have had the opportunity to tax loss harvest a small amount in internationals funds and muni bond funds recently. I would prefer to have the majority of the individual stocks in the total stock market, but I am already paying a lot in taxes so I only do a small amount of selling in my taxable account.

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Re: Rethinking Individual Stocks

Post by arcticpineapplecorp. » Mon May 27, 2019 9:38 am

bhsince87 wrote:
Sun May 26, 2019 11:24 pm
arcticpineapplecorp. wrote:
Sun May 26, 2019 9:37 pm
bhsince87 wrote:
Sun May 26, 2019 5:06 pm
I've averaged over 16% per year returns through my individual stock purchases. Done it for 30 years. Currently own about 35 different companies.

But all of our 401k and IRA investments have been strict Boglehead funds. And I recommend funds to anyone who asks.
So you've gotten 16% for 30 years? Why bother at all with "strict Boglehead funds" at all? If you've done so well, aren't you missing out 16% annual gains on your 401k and IRA monies? That sounds like a lost opportunity there.
Because I'm not greedy (too much, at least), or stupid.

The retirement funds are our life support.

The other accounts were for stretch goals, and luckily for us, they worked out. We would have been ok with 0% return there.
so luck has much to do with it. Whereas your initial post made it seem like it was easy to obtain 16% a year for 30 years, you now state you didn't really know how well things were going to go and you could have gotten 0% to some other %, which may or may not have beaten the market. To state this again, you gambled that individual stocks would do better than the market, which may not have happened. I think it's important for other readers to understand this rather than either expect that they too can get 16% per year for 30 years or wonder what they're doing wrong by NOT getting 16% returns on their individual stock investments.

And, yes, I was going to say, until and unless we see the actual investments, when they were purchased, etc, as in, ALL details, anybody can say what returns they think they got. And beardstown math is more common than we imagine (so is mental accounting).
"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: Rethinking Individual Stocks

Post by Crushtheturtle » Mon May 27, 2019 10:02 am

Always liked Bogle’s suggestion to look at your stocks about once every 30 years.
If you ignore your accounts for 30 years, you should have a cardiologist with you when you finally check them, because you're going to have a heart attack when you see that you were a victim of identity theft and your money is all gone.
Beware the advice of successful people; they do not seek company. - Scott Adams

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Re: Rethinking Individual Stocks

Post by nedsaid » Mon May 27, 2019 10:06 am

Fortunately, I have tracked everything in Quicken since about 1995, so I have a pretty good idea of how my individual stocks have done. The last time I checked, my stocks were trailing the US Total Stock Market Index by a bit less than 1% a year, and that is probably about right as I tilt away from High Tech. I do own Applied Materials and Microsoft now individually but won't buy the really high P/E stuff like Amazon. Do not own Facebook or Google individually. So my stocks have done about what one would expect.

I have read from the research that individual stock pickers tend to trail the indexes by 4% a year and I have trailed by about 1%. So my relative success compared to other individuals doesn't mean that I have succeeded. On the other hand, my stocks are Value oriented and I don't chase the High Tech stuff, only buy High Tech when these stocks are approaching Value status. Microsoft is a good example. Also bought Applied Materials when it was relatively cheap. My High Tech weighting in my individual stocks is probably about 15% compared to 25% for the S&P 500. Also, the individual stock portfolio doesn't contain any FAANG stocks which did amazingly well over the last decade or so. So I haven't done so bad either. But what I would say is that just owning an S&P 500 index would have done a bit better with zero work, and the S&P 500 SPDRs have been available for a long time.
A fool and his money are good for business.

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Re: Rethinking Individual Stocks

Post by mhadden1 » Mon May 27, 2019 10:11 am

I've been thinking some more about this topic. I see now that all I needed to do was buy Amazon in 2009. Nothing so hard about that. :moneybag
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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JoMoney
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Re: Rethinking Individual Stocks

Post by JoMoney » Mon May 27, 2019 10:18 am

Crushtheturtle wrote:
Mon May 27, 2019 10:02 am
Always liked Bogle’s suggestion to look at your stocks about once every 30 years.
If you ignore your accounts for 30 years, you should have a cardiologist with you when you finally check them, because you're going to have a heart attack when you see that you were a victim of identity theft and your money is all gone.
Even without identity theft, escheatment laws might liquidate the stocks and turn the cash over to the state.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Rethinking Individual Stocks

Post by illumination » Mon May 27, 2019 1:05 pm

Maybe I'm confused, but the OP seems too focused on taxes when the real number that matters is total dollars.

Selling a loser may mean you stay under certain income limits and can have access to that money in other pots, but what if you simply had all that money instead in an index fund that was a "winner"? I'd rather have say $50,000 in capital gains I cashed out and then subsequently owed $10k more in taxes as opposed to a $10,000 loss I could write off on my taxes. At the end, it's more dollars in your pocket that matters.

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Re: Rethinking Individual Stocks

Post by delamer » Mon May 27, 2019 1:16 pm

With all due respect to both you and your wife, if you dropped dead tomorrow would your wife be willing/able to deal with your current investment strategy?

What if you develop dementia/cognitive decline? Could you continue to implement your strategy?

There is a lot to be said for simplifying investing as we age, particularly when we get into our 70’s and older. Fewer holdings and fewer accounts should be the goal.

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Re: Rethinking Individual Stocks

Post by DonCamillo » Thu May 30, 2019 1:20 pm

illumination wrote:
Mon May 27, 2019 1:05 pm
Maybe I'm confused, but the OP seems too focused on taxes when the real number that matters is total dollars.

Selling a loser may mean you stay under certain income limits and can have access to that money in other pots, but what if you simply had all that money instead in an index fund that was a "winner"? I'd rather have say $50,000 in capital gains I cashed out and then subsequently owed $10k more in taxes as opposed to a $10,000 loss I could write off on my taxes. At the end, it's more dollars in your pocket that matters.
Actually, I was worried more about the Medicare MAGI than the taxes. When exceeding a threshold by a few dollars can mean paying an extra $200 plus a month increasing annually for the rest of your and your wife’s life, I wanted to avoid that. Compared to that, a few thousand dollars in extra taxes is just noise.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

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