Peanut returns [why not try stock picking?]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
InvestorNewb
Posts: 1620
Joined: Mon Sep 03, 2012 11:27 am

Peanut returns [why not try stock picking?]

Post by InvestorNewb » Fri Oct 23, 2015 3:15 pm

When I look at some of the tech stocks, I feel like my indexing strategy is getting peanut returns:

Year-to-date:
Amazon: 92%
Netflix: 104%
Goolgle: 38%

Me: Slightly down for the year. I've given away some peanuts.

Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.

My tax-free account has gone virtually nowhere and I'm thinking of taking on more risk for potentially higher returns.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

Jack FFR1846
Posts: 11136
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Peanut returns

Post by Jack FFR1846 » Fri Oct 23, 2015 3:24 pm

Enron
MCI Worldcom
Poloroid

There's a list of some former hot stocks

Do I need to go back to pre-black-friday DEC?

If you are willing to lose all your money, go pick the next hot stock. Your list is following the puck. You know they went into the goal already but we are at the face off. You willing to bet they are all going into the right goal again?
Bogle: Smart Beta is stupid

flyingbison
Posts: 1363
Joined: Wed Mar 12, 2014 8:52 am

Re: Peanut returns

Post by flyingbison » Fri Oct 23, 2015 3:25 pm

If you bought Netflix in July of 2011, it would have taken you 2 years to break even. If you bought it in August this year, you'd be down $23 a share right now.

User avatar
NoRoboGuy
Posts: 733
Joined: Fri Apr 01, 2011 11:07 pm
Location: Just west of Austin TX

Re: Peanut returns

Post by NoRoboGuy » Fri Oct 23, 2015 3:28 pm

Oh. I thought this was about Charlie Brown's portfolio...good grief! :oops:
There is no free lunch.

lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 11:55 pm

Re: Peanut returns

Post by lack_ey » Fri Oct 23, 2015 3:31 pm

There are a lot of big names every year that have been doing relatively well that don't do well. You're not going to pick the right ones all the time or even close to it.

More generally this is fairly similar to what a large-cap momentum fund does, so you could just buy that.

User avatar
cheese_breath
Posts: 9087
Joined: Wed Sep 14, 2011 7:08 pm

Re: Peanut returns

Post by cheese_breath » Fri Oct 23, 2015 4:21 pm

NoRoboGuy wrote:Oh. I thought this was about Charlie Brown's portfolio...good grief! :oops:
His FA Lucy must have made a fortune in commissions.
The surest way to know the future is when it becomes the past.

User avatar
nisiprius
Advisory Board
Posts: 40021
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Peanut returns

Post by nisiprius » Fri Oct 23, 2015 4:46 pm

InvestorNewb wrote:When I look at some of the tech stocks, I feel like my indexing strategy is getting peanut returns...
When I look at some lottery winners, I feel like my indexing strategy is getting peanut returns.
Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat.
That's just what Will Rogers recommended: "Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.
The "hot hands" portfolio comes to mind which I think this is similar to.
"Hot hands" is a really good name, because it is a reference to a belief in basketball that Wikipedia calls the hot-hand fallacy The belief is that if a basketball player makes a successful shot, it increases the odds that his next shot will be successful. It's been carefully studied in basketball. It's not true in basketball.
My tax-free account has gone virtually nowhere and I'm thinking of taking on more risk for potentially higher returns.
Or potentially lower returns. But of course you understand that and are happy with it... I hope?

There's no doubt at all that the highest-returning stocks earn much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much, much more than an index fund. The problem is knowing which they will be ahead of time.

You really need to test your hypothesis--preferably not with real money. I think this is your hypothesis--if not, please state it carefully yourself. Since the S&P 500 is said by S&P to include "leading companies in leading industries," I will assume that when you say "the top stocks of well-known companies" we can use "the stocks of the S&P 500."

1) Each year, wait until mid-October.
2) Identify the three stocks in the S&P 500 that have had the highest return.
3) Buy them and hold them for 12 months, until next October.
4) Repeat annually.

But, seriously--every brokerage in the world has a stock screener that will let you do this easily. Do you really think it's as simple as that? Why isn't everyone with a brokerage account a billionaire?

(And... it's an equally dubious argument... but doesn't it seem to make just as much sense that the stocks that have gone up the most are the ones that are now most likely to be overvalued?)
Last edited by nisiprius on Fri Oct 23, 2015 7:52 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

jjface
Posts: 2629
Joined: Thu Mar 19, 2015 6:18 pm

Re: Peanut returns

Post by jjface » Fri Oct 23, 2015 5:06 pm

If we all knew which ones would go up we would all be rich. You could equally pick one that crashes badly. That is why we invest in the total market - for diversification and to remove specific risk from individual stocks.

I thought I would do something similar and bought AAPL in 2012. It took 2 years to recover. So what do you do with something like that after 6-12 months - sell it at a loss? Look where you would be now if you had sold vs hadn't. It is all just gambling with individual stocks.
What about a name like Barnes and noble. Once trading at $45+ and now under $13.

I actually held amazon in 2011 and flipped it for a profit after 12 months. I thought that was a good move with everyone shouting about how it didn't actually make any money or something like that. It is now 300% higher. So that is a case of not holding it long enough.

RadAudit
Posts: 3687
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Peanut returns

Post by RadAudit » Fri Oct 23, 2015 5:48 pm

InvestorNewb wrote:Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat.
Why not, indeed? Excellent approach, if it works. :wink: Best of luck!
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

Stonebr
Posts: 1472
Joined: Wed Jan 21, 2009 11:19 am
Location: Maine

Re: Peanut returns

Post by Stonebr » Fri Oct 23, 2015 7:38 pm

RadAudit wrote:
InvestorNewb wrote:Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat.
Why not, indeed? Excellent approach, if it works. :wink: Best of luck!
+1 Give it a try. Many of us are in the "been there, done that" crowd, but you may want to learn from personal experience in your own way. My own experience was that what seems perfectly obvious and simple becomes a bit more difficult in the actual doing. Sort of like the difference between a paper piano and a real one.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

Jeff Albertson
Posts: 749
Joined: Sat Apr 06, 2013 7:11 pm
Location: Springfield

Re: Peanut returns

Post by Jeff Albertson » Fri Oct 23, 2015 7:42 pm

Take Will Rogers' advice:

Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.

John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: Peanut returns

Post by John3754 » Fri Oct 23, 2015 11:40 pm

What ever happened to your roulette strategy?

User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Peanut returns

Post by triceratop » Fri Oct 23, 2015 11:57 pm

cheese_breath wrote:
NoRoboGuy wrote:Oh. I thought this was about Charlie Brown's portfolio...good grief! :oops:
His FA Lucy must have made a fortune in commissions.
Now you know why I chose the avatar i did. Very apropos for FAs and the industry in general.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

IPer
Posts: 1639
Joined: Sun Jul 28, 2013 8:51 pm

Re: Peanut returns

Post by IPer » Sat Oct 24, 2015 12:05 am

I am not going to bite, I am not going to bite, I am not ...
but I want to read all the cool remarks!
Read the Wiki Wiki !

User avatar
zaboomafoozarg
Posts: 2058
Joined: Sun Jun 12, 2011 12:34 pm

Re: Peanut returns

Post by zaboomafoozarg » Sat Oct 24, 2015 12:24 am

InvestorNewb wrote:Me: Slightly down for the year. I've given away some peanuts.

...

My tax-free account has gone virtually nowhere and I'm thinking of taking on more risk for potentially higher returns.
It's a single year, man. The market doesn't go up every year. Sometimes it goes down. A lot.

But I agree with what others have said - it may be beneficial to take some fun money (a percent or two) and use it to try out your strategy. Win or lose, selfish old me would love to read about the results :twisted:

2comma
Posts: 1241
Joined: Thu Jul 15, 2010 11:37 pm

Re: Peanut returns

Post by 2comma » Sat Oct 24, 2015 12:55 am

George Washington Carver and I have done quite well with peanuts. Maybe you just need to wait for the rain? I wouldn't over fertilize! If you add 5% more fertilizer be sure to keep good records so you're not fooling yourself.
If I am stupid I will pay.

IPer
Posts: 1639
Joined: Sun Jul 28, 2013 8:51 pm

Re: Peanut returns

Post by IPer » Sat Oct 24, 2015 1:20 am

InvestorNewb wrote:When I look at some of the tech stocks, I feel like my indexing strategy is getting peanut returns:

Year-to-date:
Amazon: 92%
Netflix: 104%
Goolgle: 38%

Me: Slightly down for the year. I've given away some peanuts.

Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.

My tax-free account has gone virtually nowhere and I'm thinking of taking on more risk for potentially higher returns.
If only I had bought Amazon, Netflix, Google instead! What are these Vanguard/Boglehead people doing to me???!
Read the Wiki Wiki !

User avatar
Toons
Posts: 13440
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Peanut returns

Post by Toons » Sat Oct 24, 2015 4:12 am

Don't be greedy. :happy
Stay Focused.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

larklea
Posts: 225
Joined: Sun Dec 26, 2010 2:48 pm

Re: Peanut returns

Post by larklea » Sat Oct 24, 2015 7:00 am

Google "survivor bias".
The tendency for failed companies to be excluded from performance studies due to the fact that they no longer exist.

Read more: http://www.investorwords.com/5814/survi ... z3pUCVGMmN
A lot of the hot tech stocks from years past may not even exist anymore. I won't mention any. It's the old "back-testing" problem. As others have noted, looking backwards is easy, future not so much.

joebh
Posts: 1708
Joined: Mon Mar 02, 2015 3:45 pm

Re: Peanut returns

Post by joebh » Sat Oct 24, 2015 7:06 am

InvestorNewb wrote:Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.
This is a terrific plan if you are consistently capable of divining which will be the "top stocks" for the next 6-12 months, rather than looking up some year-to-date returns and reading off the best of that list.

Before you throw away real money, dust off your crystal ball, and post the names of the "top stock" it tells you here. Then come back in 6 months and see what really happened. Repeat it at least once.

That will be fun, and perhaps educational.

Swampy
Posts: 770
Joined: Fri Aug 31, 2012 7:16 am
Location: Between gators, rattlers and snowbirds

Re: Peanut returns

Post by Swampy » Sat Oct 24, 2015 8:08 am

Amazon: 92%
Netflix: 104%
Goolgle: 38%

Why not invest in the top stocks of well-known companies that are moving the index?
Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat.
The "hot hands" portfolio comes to mind which I think this is similar to.
Sounds like a great idea :idea: :idea: :idea: :idea: :idea: :idea: :idea: .

Why not do it and get back to us in a decade to let us know what we missed.

BTW, you're describing me - 20 years ago. It worked out so well that here I am.

While you're at it, why bother with buying the next top stocks - just pick tonight's lotto numbers and you're set :wink:.
Any more questions?
If you fail to plan, you plan to fail. | Failure is not an option. | If I have seen further, it is because I was carried on the shoulders of giants.

User avatar
oncorhynchus
Posts: 144
Joined: Fri May 23, 2014 2:30 pm

Re: Peanut returns

Post by oncorhynchus » Sat Oct 24, 2015 8:08 am

Stonebr wrote:
RadAudit wrote:
InvestorNewb wrote:Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat.
Why not, indeed? Excellent approach, if it works. :wink: Best of luck!
+1 Give it a try. Many of us are in the "been there, done that" crowd, but you may want to learn from personal experience in your own way. My own experience was that what seems perfectly obvious and simple becomes a bit more difficult in the actual doing. Sort of like the difference between a paper piano and a real one.
+1 I agree: Go for it! It's only money and some people just need to put their finger in the candle flame to learn that it's hot. Just remember that the problem with acquiring knowledge through experience is that you need to survive the experience for that knowledge to do you any good.

o
-- Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime. --

User avatar
cheese_breath
Posts: 9087
Joined: Wed Sep 14, 2011 7:08 pm

Re: Peanut returns

Post by cheese_breath » Sat Oct 24, 2015 8:13 am

It's too late to jump into these three now. Why not tell us what the next big gainers will be so we can all get in before the big gains.
The surest way to know the future is when it becomes the past.

User avatar
Wildebeest
Posts: 1204
Joined: Fri Dec 27, 2013 2:36 pm

Re: Peanut returns

Post by Wildebeest » Sat Oct 24, 2015 9:45 am

InvestorNewb wrote:When I look at some of the tech stocks, I feel like my indexing strategy is getting peanut returns:

Year-to-date:
Amazon: 92%
Netflix: 104%
Goolgle: 38%

Me: Slightly down for the year. I've given away some peanuts.

Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.

My tax-free account has gone virtually nowhere and I'm thinking of taking on more risk for potentially higher returns.
Your returns will not get better over the next 10 years if you stay in indexfunds. viewtopic.php?f=10&t=176201

If you go with the "hot hands", and unless you win the lottery, you may not have "peanuts" left to invest.

Let us know, how it works out for you.
The Golden Rule: One should treat others as one would like others to treat oneself.

User avatar
ofcmetz
Posts: 2419
Joined: Tue Feb 08, 2011 8:09 pm
Location: Louisiana

Re: Peanut returns

Post by ofcmetz » Sat Oct 24, 2015 10:01 am

OP, I would stick with a well thought out plan of investing with broad based index funds. This isn't a short term game like blackjack.
Never underestimate the power of the force of low cost index funds.

carolinaman
Posts: 4012
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: Peanut returns

Post by carolinaman » Sat Oct 24, 2015 10:05 am

InvestorNewb wrote:When I look at some of the tech stocks, I feel like my indexing strategy is getting peanut returns:

Year-to-date:
Amazon: 92%
Netflix: 104%
Goolgle: 38%

Me: Slightly down for the year. I've given away some peanuts.

Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.

My tax-free account has gone virtually nowhere and I'm thinking of taking on more risk for potentially higher returns.
Your financial rear view mirror is working well. The big question is how will that help you going forward.

User avatar
zaboomafoozarg
Posts: 2058
Joined: Sun Jun 12, 2011 12:34 pm

Re: Peanut returns

Post by zaboomafoozarg » Sat Oct 24, 2015 10:55 am

In order to capitalize on peanut returns, you can consider the following companies:

DMND - Diamond Foods, Emerald Nuts
SJM - J.M. Smuckers, JIF peanut butter
LNCE - Lance, Lance nuts
JBSS - John B. Sanfilippo & Sons, Fisher Nuts
CAG - ConAgra Foods, assorted nuts

Annualized returns for this nutty portfolio:

YTD: 14.9%
1Y: 25.8%
3Y: 28.4%
5Y: 17.1%
10Y: 11.2%

Compared to total US index:

YTD: -0.9%
1Y: 5.5%
3Y: 14.3%
5Y: 13.5%
10Y: 7.9%

Wow. I think I'm going to replace my SCV tilt with a nuts tilt.

small_index
Posts: 631
Joined: Sun Aug 16, 2015 2:47 am

Re: Peanut returns

Post by small_index » Sat Oct 24, 2015 4:44 pm

OP - Another way to look at the S&P 500 market prices, is thousands of full time professionals working to find a flaw in the market's pricing. The summary of the market's opinion is the price of stocks you see. If you decide the market has under-priced the 3 most visible stocks each year, maybe that's only a few hundred professionals all getting it wrong, and that you got it right. The worst part is that a random walk determines the outcome, so you could be right without knowing if it's luck or skill for years.

User avatar
nedsaid
Posts: 13031
Joined: Fri Nov 23, 2012 12:33 pm

Re: Peanut returns [why not try stock picking?]

Post by nedsaid » Sat Oct 24, 2015 6:35 pm

I don't recommend individual stock picking. I own individual stocks myself but they are a declining portion of my portfolio, they were 45% of my retirement portfolio in 1999 and are now about 13%. Why did I de-emphasize the role of individual stocks in my portfolio? First was single stock risk. I took big losses in Lucent and later Nortel and that smarted. Second, it took time. Third, it seemed that I got somewhere around market returns. I didn't see additional return for the effort.

I wasn't terrible at stock picking and whatever success I had was from being value-oriented and being very patient. In August, I sold a stock where I made nine times my original investment but it took 16 years to get that reward. When the buyout offer came for that stock, the price of that stock went up 50% in one day! Who could have predicted that? I also have posted about the "Four Horsemen of Underperformance", stocks that I bought at "bargain" prices that in fact were still overvalued and expensive when I bought them. So I have had winners and losers.

There are regrets over stocks that I have picked. I have never had a moment of regret over buying any of the broad index funds: Total US Stock Market, Total US Bond Market, and Total International Stock. No stock picking, no individual stock risk, no buyer's remorse, no research and visits to the library needed. No muss, no fuss.

The original poster is always chasing what is hot. I remember this fellow bragging about his 20% investment in REITs despite warnings about their volatility. He later was expressing surprise over how volatile those things were. I suppose there will be another thread later that man, those individual stocks can really be risky!
A fool and his money are good for business.

User avatar
nedsaid
Posts: 13031
Joined: Fri Nov 23, 2012 12:33 pm

Re: Peanut returns

Post by nedsaid » Sat Oct 24, 2015 7:00 pm

NoRoboGuy wrote:Oh. I thought this was about Charlie Brown's portfolio...good grief! :oops:
Charlie Brown didn't chase the hot internet and high tech stocks during the 1990's. Most of what he bought was relatively dull and boring and paid a dividend. He refused to chase what was hot. Charlie also learned about individual stock risk and started buying index funds in earnest in 1999.
A fool and his money are good for business.

ShiftF5
Posts: 751
Joined: Wed Jan 11, 2012 8:59 pm

Re: Peanut returns [why not try stock picking?]

Post by ShiftF5 » Sat Oct 24, 2015 7:03 pm

OP -- As you can tell from the remarks - many on this board (myself included) have tried a whole variety of things before discovering and embracing the Boglehead investment philosophy.

Please don't take offense at any of the remarks. There is no snark intended. It's just that many of us lost significant money trying to outsmart Mr. Market before settling into a simple index portfolio.

I would be much better off financially had I skipped my day trading years, but hey I had to learn.

Hopefully your lessons come cheap.

Best wishes with whatever you decide.

User avatar
nisiprius
Advisory Board
Posts: 40021
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Peanut returns [why not try stock picking?]

Post by nisiprius » Sat Oct 24, 2015 7:13 pm

To show how hard it is to pick stocks, read my thread, Dow 36000's stock picks. Now, their method wasn't "pick the top stocks of well-known companies that are moving the index" (which I think means "the S&P 500 stock with the highest YTD returns in September," they were doing something a bit more fundamental-analysis-y and conservative.

They said that "One way to spread your money is to put all of it into a Wilshire 5000 index, such as Vanguard Total Stock Market Fund. That's acceptable to us, but it's not ideal." They wanted stocks of companies that 1) show consistent increases in earnings, 2) high growth in earnings, 3) high profit margins, 4) low debt, 5) managers who own stock.

Their three picks were General Electric, Microsoft, and Tootsie Roll. These did, and still do fit the general description of "top stocks of well-known companies."

They were not looking at past performance--or at least they didn't admit that was how they picked them--but as a matter of fact, GE and Microsoft far, far, far outperformed the S&P 500 during every calendar year from 1995 through 1999, five years in a row. Tootsie Roll was a laggard, though.

On the "hot hands" theory, you'd have agreed with them on GE and Microsoft, but given Tootsie Roll a miss.

Here's the amazing (?) thing. Of those three stocks, over the period 1/1/2000 to 9/23/2015, not one of them has outperformed Total Stock. Despite their plausible approach, they managed to pick three losers. Microsoft earned 1/3rd as much as Total Stock, and General Electric actually lost money--$10,000 invested in GE on 1/1/2000 is less than $9,250 today, including dividends. The best of the three was Tootsie Roll, but even then, it didn't quite beat the S&P, although you could call it a tie.
nedsaid wrote:...Charlie [Brown] also learned about individual stock risk and started buying index funds in earnest in 1999...
And thus, Charlie Brown handily beat General Electric, Microsoft, and Tootsie Roll.
Last edited by nisiprius on Sat Oct 24, 2015 7:17 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
sheneron
Posts: 100
Joined: Sun Sep 06, 2015 8:45 pm

Re: Peanut returns [why not try stock picking?]

Post by sheneron » Sat Oct 24, 2015 7:16 pm

Wow, pick the next big gainers... why has no one thought of this :confused. Time to withdraw from my whole life policy...

J295
Posts: 2272
Joined: Sun Jan 01, 2012 11:40 pm

Re: Peanut returns [why not try stock picking?]

Post by J295 » Sat Oct 24, 2015 7:38 pm

The evidence is against OP being successful long term in stock picking.

OP might be experiencing one of the two attitudes that investors often need to moderate -- greed (the other being fear).

Having said that, if he/she is young and excited for rapid growth, that seems normal. I'm 56 and mostly retired so the slow lane works just fine.

Perhaps OP will want to use 5% of his/her funds and do some stock picking/market timing. That could satisfy his/her itch and be relatively inexpensive "tuition" in real life finance.

In any case, good luck OP!

gvsucavie03
Posts: 1410
Joined: Sat Feb 16, 2013 8:30 am

Re: Peanut returns [why not try stock picking?]

Post by gvsucavie03 » Sat Oct 24, 2015 7:40 pm

The real problem is that IF this works, you need to do it again and again and again without it blowing up to beat a sound plan like passive investing.

User avatar
nedsaid
Posts: 13031
Joined: Fri Nov 23, 2012 12:33 pm

Re: Peanut returns [why not try stock picking?]

Post by nedsaid » Sat Oct 24, 2015 7:52 pm

Unfortunately, Charlie Brown bought Microsoft and GE in the early 2000's at "bargain" prices after the 2000-2002 bear market. They are among the "Four Horsemen of Underperformance" named
Microsoft, GE, Pfizer, and AIG. All were market darlings during the 1990's and were on many "buy" lists during that time.

But fortunately, Charlie Brown was emphasizing Index Funds and de-emphasized individual stocks from 1999 forward. Also in early 2000, Charlie Brown learned about bonds and cash; selling 15% of his stock holdings before the crash. Charlie learned about portfolio theory and learned to appreciate the role of bonds in a portfolio. He does not chase hot stocks or even hot asset classes or stock sectors. Patience with boring investments pays off over time.
A fool and his money are good for business.

User avatar
triceratop
Posts: 5838
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Peanut returns

Post by triceratop » Sat Oct 24, 2015 7:56 pm

nedsaid wrote:
NoRoboGuy wrote:Oh. I thought this was about Charlie Brown's portfolio...good grief! :oops:
Charlie Brown didn't chase the hot internet and high tech stocks during the 1990's. Most of what he bought was relatively dull and boring and paid a dividend. He refused to chase what was hot. Charlie also learned about individual stock risk and started buying index funds in earnest in 1999.
Charlie should have consulted his financial advisor more. It's difficult for me to buy that next boat when I only charge per consultation. Fortunately my advice is frequently vague so they generally come back, but some make the mistake of pursuing index investing and hurting my their returns. Speaking of which...

5 cents please
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
CoolHobieCat
Posts: 31
Joined: Mon Dec 15, 2014 10:31 am
Contact:

Re: Peanut returns [why not try stock picking?]

Post by CoolHobieCat » Sat Oct 24, 2015 7:59 pm

I sold my last remaining stock this week, Apple. It is a big relief to now be 100% invested in Index Funds.

User avatar
unclescrooge
Posts: 4360
Joined: Thu Jun 07, 2012 7:00 pm

Re: Peanut returns [why not try stock picking?]

Post by unclescrooge » Sat Oct 24, 2015 8:04 pm

If you do try it, use openfolio to accurately track your returns.

Must people I know not only lose money, but delude themselves into thinking they're beating benchmarks.

Openfolio will keep you on track.

lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 11:55 pm

Re: Peanut returns [why not try stock picking?]

Post by lack_ey » Sat Oct 24, 2015 8:06 pm

nedsaid wrote:Unfortunately, Charlie Brown bought Microsoft and GE in the early 2000's at "bargain" prices after the 2000-2002 bear market. They are among the "Four Horsemen of Underperformance" named
Microsoft, GE, Pfizer, and AIG. All were market darlings during the 1990's and were on many "buy" lists during that time.

But fortunately, Charlie Brown was emphasizing Index Funds and de-emphasized individual stocks from 1999 forward. Also in early 2000, Charlie Brown learned about bonds and cash; selling 15% of his stock holdings before the crash. Charlie learned about portfolio theory and learned to appreciate the role of bonds in a portfolio. He does not chase hot stocks or even hot asset classes or stock sectors. Patience with boring investments pays off over time.
That's what you get for trying to buy losers. The OP wants to buy winners! :twisted:

that is, recent past winners, so a momentum strategy

User avatar
Taylor Larimore
Advisory Board
Posts: 29056
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Peanut returns [why not try stock picking?]

Post by Taylor Larimore » Sat Oct 24, 2015 8:14 pm

InvestorNewb wrote:Why not try stock picking?
InvestorNewb:

Many years ago I made the mistake of investing in individual stocks. I wish I had listened to these experts:
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."

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.

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."

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

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: Peanut returns [why not try stock picking?]

Post by backpacker » Sat Oct 24, 2015 8:38 pm

InvestorNewb wrote:Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.
You have just rediscovered the momentum factor. :happy

ShiftF5
Posts: 751
Joined: Wed Jan 11, 2012 8:59 pm

Re: Peanut returns [why not try stock picking?]

Post by ShiftF5 » Sat Oct 24, 2015 8:44 pm

I wish I'd read the book "Winning The Loser's Game" years ago. :oops:

kjvmartin
Posts: 1403
Joined: Wed Jan 21, 2015 8:57 am

Re: Peanut returns [why not try stock picking?]

Post by kjvmartin » Sat Oct 24, 2015 8:57 pm

What's your allocation like? I'm very aggressive with boring/generic 80% equities including some international exposure and I'm up a few points. I don't have a total market fund, but I approximate it with the S&P, small/midcap etc.

I've had mediocre to great years since my start in mid 2008. Either single or double digit gains.

rgs92
Posts: 2447
Joined: Mon Mar 02, 2009 8:00 pm

Re: Peanut returns [why not try stock picking?]

Post by rgs92 » Sat Oct 24, 2015 11:04 pm

I've kept about 60-grand in a portfolio of these stocks over the last 5 years or so:
Apple, PG, Visa, Mastercard, JNJ, Google, Verizon.
I do it out of habit because I've always owned some stocks.
Overall they've done nicely. I just tend to buy and hold and stay the course and collect the dividends along the way.
It's just a small piece of my retirement portfolio. It's kind of my nod to Peter Lynch.
I keep an eye on P/E and price-to-book and such, that's all.
I also keep some money in PFF, the preferred stock fund that would otherwise be in bonds.
And I keep about 30 grand in XLU that would otherwise be in the total stock index.
But the main bulk of my stock and bond holdings are in the vanilla total stock and bond market indexes.
Each day I compare my portfolio against Vanguard Balanced Index (VBIAX) and see if I'm ahead or not, but I also try to limit volatility somewhat.
So far, I'm pretty close to the performance of this benchmark, but I like the fact that I seem to have less volatility.
It's a little quirky, but it has worked for me over time.

User avatar
nedsaid
Posts: 13031
Joined: Fri Nov 23, 2012 12:33 pm

Re: Peanut returns [why not try stock picking?]

Post by nedsaid » Sun Oct 25, 2015 10:06 am

rgs92 wrote:I've kept about 60-grand in a portfolio of these stocks over the last 5 years or so:
Apple, PG, Visa, Mastercard, JNJ, Google, Verizon.
I do it out of habit because I've always owned some stocks.
Overall they've done nicely. I just tend to buy and hold and stay the course and collect the dividends along the way.
It's just a small piece of my retirement portfolio. It's kind of my nod to Peter Lynch.
I keep an eye on P/E and price-to-book and such, that's all.
I also keep some money in PFF, the preferred stock fund that would otherwise be in bonds.
And I keep about 30 grand in XLU that would otherwise be in the total stock index.
But the main bulk of my stock and bond holdings are in the vanilla total stock and bond market indexes.
Each day I compare my portfolio against Vanguard Balanced Index (VBIAX) and see if I'm ahead or not, but I also try to limit volatility somewhat.
So far, I'm pretty close to the performance of this benchmark, but I like the fact that I seem to have less volatility.
It's a little quirky, but it has worked for me over time.
You sound a lot like me. It is fun to have a portfolio of individual stocks and I work with a broker who does the research for me. After the crash of 2000, my interest in hitting ValueLine and other financial publications for stock ideas crashed with it. Fortunately, the broker is independent and established. My Brokerage IRA account with him has been fairly low turnover. I am not a very profitable client but I don't bug him much either.

I don't advise that other investors do what I have done but on the other hand, having some individual stocks hasn't hurt my investing results either. But even within that Brokerage IRA, I have been branching away from individual stocks. I own mutual funds and ETF's based on indexes in that account also.
A fool and his money are good for business.

User avatar
knpstr
Posts: 2481
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: Peanut returns [why not try stock picking?]

Post by knpstr » Sun Oct 25, 2015 10:36 am

InvestorNewb wrote:When I look at some of the tech stocks, I feel like my indexing strategy is getting peanut returns:

Year-to-date:
Amazon: 92%
Netflix: 104%
Goolgle: 38%

Me: Slightly down for the year. I've given away some peanuts.

Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.

My tax-free account has gone virtually nowhere and I'm thinking of taking on more risk for potentially higher returns.
Give it a try, if you'd like. Sounds like a new strategy no one has ever thought of.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

feh
Posts: 1343
Joined: Sat Dec 15, 2012 11:39 am

Re: Peanut returns [why not try stock picking?]

Post by feh » Mon Oct 26, 2015 12:07 pm

InvestorNewb wrote:When I look at some of the tech stocks, I feel like my indexing strategy is getting peanut returns:

My tax-free account has gone virtually nowhere and I'm thinking of taking on more risk for potentially higher returns.
Newb - you are no longer a newb. You've been around here for 3 years now.

May I ask why you still occasionally post questions such as this?

User avatar
nisiprius
Advisory Board
Posts: 40021
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Peanut returns [why not try stock picking?]

Post by nisiprius » Tue Oct 27, 2015 7:56 am

backpacker wrote:
InvestorNewb wrote:Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.
You have just rediscovered the momentum factor. :happy
Yeah, this is one of the things that just closes my mind to factor-based investing... I know I should give it a fair shake.

To believe in the momentum factor, you have to believe that investors have never managed to price in a claimed phenomenon that has been known by that name to traders since the early 1900s if not before, and that was documented (under the name "inertia") in a peer-reviewed academic journal in 1937... by an author who said that the phenomenon was real but that it "could not be employed by speculators with any assurance of consistent or large profits."

Furthermore, you have to believe that some stocks have it and other stocks don't have it; that you can tell which stocks have it; and that the stocks that have it, keep it.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

keystone
Posts: 552
Joined: Tue Aug 28, 2012 12:34 pm

Re: Peanut returns [why not try stock picking?]

Post by keystone » Tue Oct 27, 2015 8:03 am

InvestorNewb wrote:
Why not invest in the top stocks of well-known companies that are moving the index? Buy them for 6-12 months and then sell them and buy the next top ones for that year and repeat. The "hot hands" portfolio comes to mind which I think this is similar to.
I suspect many of us here have tried this and other stock picking schemes and have learned over time that it's not as easy as we thought it would be. It sounds to me like you have yet to learn this valuable lesson. I think you should go ahead and take a chunk of your savings and try out this hot hand strategy so you can experience this for yourself.

Post Reply