individual stock taxable account emotions

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BashDash
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Joined: Mon Nov 28, 2016 12:31 pm

individual stock taxable account emotions

Post by BashDash » Fri Oct 06, 2017 1:23 pm

Hi BH's,
Thank you for all the help in the past and my endless posts and nervousness on my individual stock portfolio "mistake" of $114,000 total value. I'm a 60/40 37 year old who is all in on the three fund portfolio. All dividend reinvestments are shut off. My tax bracket is low this year and will probably never be this low again due to a maternity. I am having A LOT of emotional trouble selling these to convert to index funds. Currently any dividends I get I just buy VTI or VXUS in equal amounts. When I purchased each stock I used to like make a two sentence comment on why I liked each.

1) Please rip apart my sentences if you would like
2) Would you do a full sale to convert to index funds?
3) Would you continue doing what I am doing by leaving it and reinvesting into index funds from here on in?
4) How about selling the cost basis and letting the profits run? A bit of a compromise?
5) Any other comments from others who can share their experience who had the same "problem".

Thank you.

Here are my holdings.

Dunking Donuts ( Every morning half of my students in first period have there products)
Waste Management ( Population is growing and creating more junk )
Deere ( Population is growing and these people need to eat )
Alibaba ( I don’t play lottery so this is my lottery ticket to possible next Amazon )
Apple ( My students have been addicted to their products for years )
Starbucks ( If they have convinced the USA to buy 5$ coffee maybe they can convince China to do the same)
Mastercard ( I hardly ever spend cash and think society will eventually be paperless )
Visa ( I hardly ever spend cash and think society will eventually be paperless)
Home Depot ( When talking to people they will usually instead of saying “I’m going to the lumberyard” they say “I’m heading to Home Depot”. Plus people will always be fixing or buying new homes or both)
Diageo ( People will consume alcohol in good times and bad )
Markel ( This is my mini-berkshire for an insurance stock )
Nike ( Great products and my students always have their clothes/shoes on for years)
Berkshire Hathaway ( tax efficient and diversified)

Thanks!

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Toons
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Re: individual stock taxable account emotions

Post by Toons » Fri Oct 06, 2017 1:31 pm

"I am having A LOT of emotional trouble selling these to convert to index funds. "

Then that answers it,
Convert When YOU are ready
You will know when the time is right.
Confidence in yourself and your decisions. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

not4me
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Re: individual stock taxable account emotions

Post by not4me » Fri Oct 06, 2017 2:09 pm

I agree with toons...you'll know. I'll throw out a couple of ideas that may help you decide, but they won't work for everyone. I can't say definitively but I think most who buy individual stocks will tell you that the "sell" decision is harder than the "buy". If it were me, a lot of the decision would be based on how much gain/loss each have & also how different your tax situation would be after this year. For example, IF you have a large long term capital gain & you'll qualify for 0% long term cap gain tax, think of how you'd feel if instead you were paying 15%.

Other ideas: 1) Did you have criteria for when to sell when you bought? If so, has it been met?
2) Use an online chart to compare how your stock did compared to what it would have been if in the index. Trending up or down? how does that make you feel?
3) If you have any losses, I might wait until you have more income to offset
4) Are you comfortable issuing covered calls?
5) What about using appreciated shares for charitable giving?

Clearly, some of this is more emotion than not & some of it is "how" you divest yourself of them instead of "if". Good news is that you've done well so far & no reason to think you won't going forward

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BolderBoy
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Re: individual stock taxable account emotions

Post by BolderBoy » Fri Oct 06, 2017 5:35 pm

BashDash wrote:
Fri Oct 06, 2017 1:23 pm
My tax bracket is low this year and will probably never be this low again due to a maternity.

1) Please rip apart my sentences if you would like
Okay. What does the sentence above ending in "maternity", mean?
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

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grabiner
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Re: individual stock taxable account emotions

Post by grabiner » Fri Oct 06, 2017 6:39 pm

The question to ask about each individual stock is not whether it is a good company, but whether it is a good investment at the current price. Apple is a very profitable company, but if you sell me your Apple shares, I also know how much business Apple does and how it is growing, so I will pay a high price for the right to those profits. Unless you know something that I don't, there is no reason for you to hold more Apple stock than for me.

And you may actually know something that I don't: how much in capital gains can you take without a tax cost? (Make sure that you understand all of your taxes; don't take a capital gain which would cost you the earned income credit or saver's credit.) As long as you don't have too much in any one individual stock or industry, holding small amounts in a few stocks doesn't hurt your portfolio much, for the same reason that it doesn't help. Therefore, it's fine to keep individual stocks which would be costly to sell.
David Grabiner

acanthurus
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Re: individual stock taxable account emotions

Post by acanthurus » Fri Oct 06, 2017 10:02 pm

BashDash wrote:
Fri Oct 06, 2017 1:23 pm
Hi BH's,
Thank you for all the help in the past and my endless posts and nervousness on my individual stock portfolio "mistake" of $114,000 total value. I'm a 60/40 37 year old who is all in on the three fund portfolio. All dividend reinvestments are shut off. My tax bracket is low this year and will probably never be this low again due to a maternity. I am having A LOT of emotional trouble selling these to convert to index funds. Currently any dividends I get I just buy VTI or VXUS in equal amounts. When I purchased each stock I used to like make a two sentence comment on why I liked each.

1) Please rip apart my sentences if you would like
2) Would you do a full sale to convert to index funds?
3) Would you continue doing what I am doing by leaving it and reinvesting into index funds from here on in?
4) How about selling the cost basis and letting the profits run? A bit of a compromise?
5) Any other comments from others who can share their experience who had the same "problem".

Thank you.

Here are my holdings.

Dunking Donuts ( Every morning half of my students in first period have there products)
Waste Management ( Population is growing and creating more junk )
Deere ( Population is growing and these people need to eat )
Alibaba ( I don’t play lottery so this is my lottery ticket to possible next Amazon )
Apple ( My students have been addicted to their products for years )
Starbucks ( If they have convinced the USA to buy 5$ coffee maybe they can convince China to do the same)
Mastercard ( I hardly ever spend cash and think society will eventually be paperless )
Visa ( I hardly ever spend cash and think society will eventually be paperless)
Home Depot ( When talking to people they will usually instead of saying “I’m going to the lumberyard” they say “I’m heading to Home Depot”. Plus people will always be fixing or buying new homes or both)
Diageo ( People will consume alcohol in good times and bad )
Markel ( This is my mini-berkshire for an insurance stock )
Nike ( Great products and my students always have their clothes/shoes on for years)
Berkshire Hathaway ( tax efficient and diversified)

Thanks!
I am about your age, and I have a similarly large portfolio (about 200k) of individual stocks. My opinion is different than most Bogleheads.

If you cash things out, and pay 15% capital gains tax on X dollars (where X is the capital gain of any one stock), then your next investment needs to offer enough return to offset the immediate loss of 0.15 * X, or offer low enough volatility such that you sleep better at night. Only you can value the latter.

Your portfolio backtested over the last 5 years, assuming equal weighting of the stocks, has outperformed the SP500 by 5% CAGR with only a 0.5% increase in annual volatility. I had to eliminate BABA from the holdings to go back to 2012, but that is an absolutely fantastic result.

You are over-exposed to single stock risk though with that few holdings though. I see you own Deere, which I also hold and so am somewhat familiar with. They have a very large financing division which makes loans to farmers, and it accounts for a large percentage of their profits. If grain prices remain low and farmers do badly, Deere will have a very bad time. If things go well, they will make out like bandits. Other stocks in your portfolio will have issues of their own, which a perusal of their SEC filings (specifically 10K and 10Q statements) will elucidate. They can be reviewed over at the SEC Edgar search tool, https://www.sec.gov/edgar/searchedgar/c ... earch.html . Skip the financials if you don't have a background in accounting and just read the statements from management about the business, its risks, and operations. Most companies are quite clear in the risks to their businesses in these disclosures. If nothing else, this might help you figure out which stocks you want to sell first, and which you might want to keep.

I maintain a significant portion of my old stock picking portfolio as mentioned before. The median gain in that account is about 250%, so capital gains tax to me would be an immediate 20k tax hit on a ~200k portfolio. I also have been averaging about 19% CAGR in that account without dividend reinvestment but with much higher volatility due to holdings that are in cyclical industries. I have larger index fund holdings elsewhere that reduce my overall portfolio volatility though.

If you are reinvesting dividends into more diversified holdings like index funds, and adding all additional contributions to those diversified funds, and if you have large capital gains in your individual stock holdings, then I would personally lean towards keeping them if you are OK with the ups and downs and can still sleep well at night. If you can't then I would sell - investing has to be unemotional and if the volatility will lead to imprudent investing behavior, then it's best to sell and find something more diversified. Volatility isn't the risk, it's how individual investors react to volatility IMO.

I hope this has been helpful and thoughtful.
Last edited by acanthurus on Sat Oct 07, 2017 1:30 am, edited 1 time in total.

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Sandtrap
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Re: individual stock taxable account emotions

Post by Sandtrap » Fri Oct 06, 2017 10:32 pm

Toons wrote:
Fri Oct 06, 2017 1:31 pm
"I am having A LOT of emotional trouble selling these to convert to index funds. "

Then that answers it,
Convert When YOU are ready
You will know when the time is right.
Confidence in yourself and your decisions. :happy
++1

There's the business of business.
There's finance.
There's money.'
And then there's "emotion". :(
Delete emotion and there's clarity, proactivity vs attachment.
Dog wagging the tail or tail wagging the dog? :shock:

You can be ready in a minute. . .just decide and commit. :D
Shared experiences to benefit all -- not an exspurt -- per forum guidelines :) Golf score allocation 50/50 swings vs putts.

MotoTrojan
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Re: individual stock taxable account emotions

Post by MotoTrojan » Fri Oct 06, 2017 11:08 pm

None of your explanations justify why the stock will outperform the value set by those far more knowledgable than any of us; it takes more than picking successful businesses. Keep taxes in mind but sell asap. You aren't thinking about your choices the right way to invest that much in individual companies, in my eyes.

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topper1296
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Location: Nashville TN

Re: individual stock taxable account emotions

Post by topper1296 » Sat Oct 07, 2017 8:45 am

BashDash wrote:
Fri Oct 06, 2017 1:23 pm
Starbucks ( If they have convinced the USA to buy 5$ coffee maybe they can convince China to do the same)
I've seen this statement before from others. I've never paid 5$ for a cup of coffee at Starbucks.

Personally, I have no issue having individual positions (currently have 18 and may get up to 20 at some point), however I still use index funds as my core.

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Sandtrap
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Location: Hawaii😀 Northern AZ.😳

Re: individual stock taxable account emotions

Post by Sandtrap » Sat Oct 07, 2017 11:55 am

Sandtrap wrote:
Fri Oct 06, 2017 10:32 pm
Toons wrote:
Fri Oct 06, 2017 1:31 pm
"I am having A LOT of emotional trouble selling these to convert to index funds. "

Then that answers it,
Convert When YOU are ready
You will know when the time is right.
Confidence in yourself and your decisions. :happy
++1

There's the business of business.
There's finance.
There's money.'
And then there's "emotion". :(
Delete emotion and there's clarity, proactivity vs attachment.
Dog wagging the tail or tail wagging the dog? :shock:
As is said often here, "ignore the noise".

You can be ready in a minute. . .just decide and commit. :D
Shared experiences to benefit all -- not an exspurt -- per forum guidelines :) Golf score allocation 50/50 swings vs putts.

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StevieG72
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Re: individual stock taxable account emotions

Post by StevieG72 » Sun Oct 08, 2017 7:32 am

What percentage of your portfolio Is invested in these stocks?

#4 sounds like a good idea. How much money would you still have invested if you did this?
Fools think their own way is right, but the wise listen to others.

RAchip
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Re: individual stock taxable account emotions

Post by RAchip » Sun Oct 08, 2017 5:52 pm

You have a fantastic portfolio of individual stocks. It would be a mistake to sell it and buy an index fund. Just leave it alone.

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FiveK
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Re: individual stock taxable account emotions

Post by FiveK » Sun Oct 08, 2017 9:50 pm

BashDash wrote:
Fri Oct 06, 2017 1:23 pm
I'm a 60/40 37 year old who is all in on the three fund portfolio. ... My tax bracket is low this year and will probably never be this low again due to a maternity.
...
5) Any other comments from others who can share their experience who had the same "problem".
grabiner wrote:
Fri Oct 06, 2017 6:39 pm
And you may actually know something that I don't: how much in capital gains can you take without a tax cost? (Make sure that you understand all of your taxes; don't take a capital gain which would cost you the earned income credit or saver's credit.)
BashDash, do you know the marginal rates (not just "brackets") you will pay as you sell various amounts of the individual stocks?

BashDash
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Re: individual stock taxable account emotions

Post by BashDash » Tue Oct 10, 2017 1:41 pm

Thanks for all the thoughtful replies! I like knowing all of the options. I didn't give a lot of details but my wife and I basically have roughly 200k in tax deferred accounts; 150K in a ally 1.5% CD, and then this 114k in a merril edge brokerage account. So it is a relatively big part of our overall portfolio. My wife is on maternity leave this year so our income will probably never be this low ever again and I will be deferring close to 36k of my 100k salary this year plus I have a lot of other pretax deductions.


I am leaning towards my current plan for now of just re-investing my dividneds in VTI and VXUS. Although I am recently tempted to just sell the original amount I invested and let the rest run. Most of these purchases were made in 2008 when I saw everyone running for the hills from the market. At the time I was 27 years old.


Thanks again for any insight as I greatly appreciate it! Keep any suggestions coming :)

TonyDAntonio
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Re: individual stock taxable account emotions

Post by TonyDAntonio » Tue Oct 10, 2017 1:58 pm

The bug to sell my few individual stocks was placed by livesoft. And he probably doesn't even know it. A while back he said something to the effect that when the market goes down he just rebalances into his index funds/ETFs because he knows they aren't going to $0. With individual stocks you do not know they aren't on their way to $0. That way of thinking really resonated with me. I don't want to worry if Apple, say, is on its way into the ground. So I told myself I would sell it right before the 8 launch. That worked out perfectly, luckily. I just sold a bank stock I owned because it was bought by another bank and thus my reason for holding it, to help a small community, was sort of over. That worked out well, again luckily. Something already has triggered you to think about selling your individual stocks and so over time I'm sure you will. If they are at a good price then just do it and don't look back.

BashDash
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Re: individual stock taxable account emotions

Post by BashDash » Wed Oct 11, 2017 7:55 am

TonyDAntonio wrote:
Tue Oct 10, 2017 1:58 pm
The bug to sell my few individual stocks was placed by livesoft. And he probably doesn't even know it. A while back he said something to the effect that when the market goes down he just rebalances into his index funds/ETFs because he knows they aren't going to $0. With individual stocks you do not know they aren't on their way to $0. That way of thinking really resonated with me. I don't want to worry if Apple, say, is on its way into the ground. So I told myself I would sell it right before the 8 launch. That worked out perfectly, luckily. I just sold a bank stock I owned because it was bought by another bank and thus my reason for holding it, to help a small community, was sort of over. That worked out well, again luckily. Something already has triggered you to think about selling your individual stocks and so over time I'm sure you will. If they are at a good price then just do it and don't look back.
Tony this is why I love BH. Your ETF comment is so simple yet I never thought of that! I now need to look into what my marginal tax rate is going to be if I want to make the switch. I stopped DRIP this spring for all stocks. Is it possible to make a "clean" tax free switch to index ETF if I am in 15% tax bracket? I think I have a lot of room in there this year with my wife not working. If I want to make room I guess I can seriously increase my deferrals until the end of the year. I am close to am if my 457 for this year but I think I have around 9k more room in my 403b that is low cost now thanks to BH helping me kick the Voya variable annuity to the curb.




Thanks again for all help!

bloom2708
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Re: individual stock taxable account emotions

Post by bloom2708 » Wed Oct 11, 2017 8:41 am

All your individual stocks are in the Total US and Total International indexes at their cap weight.

You picked individual stocks that did well during this (quite amazing) 8 year bull run where virtually all stocks have gone up. Is that skill, luck, riding the wave?

If your gains are big enough, you are already somewhat trapped by those gains. Paying tax on big gains feels like giving back some of those gains. You can either pay the tax or "hope" that the shares go down and you don't have the gain. That strategy seems strange too.

Keep what you have. If you get an itch to buy stock xyz, buy the Total US or International stock index. It is in there. :wink:
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

BashDash
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Re: individual stock taxable account emotions

Post by BashDash » Wed Oct 11, 2017 9:09 am

bloom2708 wrote:
Wed Oct 11, 2017 8:41 am
All your individual stocks are in the Total US and Total International indexes at their cap weight.

You picked individual stocks that did well during this (quite amazing) 8 year bull run where virtually all stocks have gone up. Is that skill, luck, riding the wave?

If your gains are big enough, you are already somewhat trapped by those gains. Paying tax on big gains feels like giving back some of those gains. You can either pay the tax or "hope" that the shares go down and you don't have the gain. That strategy seems strange too.

Keep what you have. If you get an itch to buy stock xyz, buy the Total US or International stock index. It is in there. :wink:
Thanks Bloom for the reply. I really don't think I had any skill in my purchases. In 2008 I just had a good feeling it was a time to buy. I just want to make sure I am not being arrogant in holding on to them. Luckily, I don't feel the urge to buy any more individual stocks. I am currently researching if I can do a clean tax free switch to index funds.

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