Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

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steve321
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Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 12:58 pm

Some people, like Peter Lynch, said that when it comes to picking stocks individuals have a distinct advantage over professionals. If we as individuals stick to what we know, then we have an edge, and can beat the market.
This might be an explanation for the conundrum related to Kayne West's outperformance. The thread I started on that subject has now been locked [OT comment removed by admin LadyGeek]. I should now like to raise the question, related to that conundrum, of whether investing in individual stocks can be good if you stick to what you know. This is the contention of Humbledollar's author Adam Grossman, who used the Kayne West story to illustrate his point for the benefit of individual retail investors like ourselves:
https://humbledollar.com/2018/09/buy-what-you-know/
Last edited by steve321 on Mon Sep 03, 2018 1:11 pm, edited 1 time in total.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by Chip » Mon Sep 03, 2018 1:01 pm

It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.

You seem to be looking for a magic bullet. There isn't one unless you can somehow make yourself very lucky. If that's the case, then just buy a lottery ticket.

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 1:04 pm

Chip wrote:
Mon Sep 03, 2018 1:01 pm
It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by arcticpineapplecorp. » Mon Sep 03, 2018 1:12 pm

thanks for posting. I'm very surprised to see this kind of article at Humble Dollar, which is Jonathan Clement's website. Jonathan does not advocate owning individual stocks to my knowledge, so I'm very surprised this advice is on his website. However, the end result of the article was two-fold:

1. if you're going to pick individual stocks do it with a small percentage of your overall net worth. It's often recommended to only gamble on individual stocks with no more than 5% of your net worth, so it's not devastating if things don't go as planned. Kanye's stock purchases totaled $300,000. That's small potatoes considering the net worth of him and his wife.

2. From the article:
Don’t get me wrong. I still believe that the best path for investors is to stick to low-cost index funds and to steer clear of stock-picking.
That being said the article is very poorly written in my opinion because it rests on one conclusion/assumption that you've made with the title of your post. That is, the Lynch thesis that you should buy what you know.

This is not great advice because it's the financial fundamentals, the earnings that tell you the value of a company. Just because you see bunches of people buying a product, that tells you absolutely nothing about the financial health of the company. The company may have taken huge loans or maybe their profits are razor thin and can evaporate quickly with competition or one small mis-step. Until you explore the financials of a company, you don't know what's going on under the hood.

So take the author's advice and stick to low cost index funds and steer clear of stock picking. That's all you need to know.

What's funny is that the return of the market is generous and fair. When people try to beat the market, they inevitably wind up underperforming. In the hopes of beating it, they lose to it. Just get the market's return and be happy to not underperform. If you do, you'll beat 80% of all the active managers out there. That seems good enough to me.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by Geologist » Mon Sep 03, 2018 1:15 pm

steve321 wrote:
Mon Sep 03, 2018 1:04 pm
Chip wrote:
Mon Sep 03, 2018 1:01 pm
It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
There is a big difference between knowing a lot about a drug or even several drugs and knowing the business of drugs. The guy managing the fund can spend his whole time studying the business of that (which the doctor has not time for). In any case, on this site, we believe that being an expert in either the drugs or the individual businesses is not that much help. You should own the market.

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 1:17 pm

arcticpineapplecorp. wrote:
Mon Sep 03, 2018 1:12 pm
thanks for posting. I'm very surprised to see this kind of article at Humble Dollar, which is Jonathan Clement's website. Jonathan does not advocate owning individual stocks to my knowledge, so I'm very surprised this advice is on his website.
Exactly, I was surprised too and that's why I thought it would be of interest to raise the question and discuss the topic.
Like you say in the end the author favours investing in index funds, but this is somewhat at odds with the reference he makes to Lynch ealier on.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by ThriftyPhD » Mon Sep 03, 2018 1:21 pm

steve321 wrote:
Mon Sep 03, 2018 1:04 pm
Chip wrote:
Mon Sep 03, 2018 1:01 pm
It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
How does being a doctor give an edge on specific stocks?

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by arcticpineapplecorp. » Mon Sep 03, 2018 1:22 pm

steve321 wrote:
Mon Sep 03, 2018 1:17 pm
arcticpineapplecorp. wrote:
Mon Sep 03, 2018 1:12 pm
thanks for posting. I'm very surprised to see this kind of article at Humble Dollar, which is Jonathan Clement's website. Jonathan does not advocate owning individual stocks to my knowledge, so I'm very surprised this advice is on his website.
Exactly, I was surprised too and that's why I thought it would be of interest to raise the question and discuss the topic.
Like you say in the end the author favours investing in index funds, but this is somewhat at odds with the reference he makes to Lynch ealier on.
ah, well now you've learned a valuable lesson. The purpose of many articles on the internet is to get you to read them. That doesn't mean they're worth anything. If you click on them, the website makes money (if they advertise, etc.). People get paid to generate content whether it's worth anything or not. Have you been to cnbc lately? Oh right, you have (your last post). See what I mean?

You're confusing information with knowledge. The two are not the same. Which do you think this article provides?
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by HomerJ » Mon Sep 03, 2018 1:23 pm

You can love a company's product, and the company can still be bad at making money.

We own multiple storage appliances (from one vendor) at my company that we LOVE. Solid performance, easy to use, great metrics, a dream storage appliance for our IT department. We like it so much we have 70% of our virtual infrastructure on it with near-zero issues.

This storage company had an IPO a year or two ago. My coworkers talked about buying the stock, since the product was so good.

This storage company recently went bankrupt.

Now, we're trying to find a replacement for it, or at least stock up on parts while we still can. Quite a headache. At least I didn't lose a ton of money in the stock as well.
The J stands for Jay

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by TN_Boy » Mon Sep 03, 2018 1:24 pm

steve321 wrote:
Mon Sep 03, 2018 1:04 pm
Chip wrote:
Mon Sep 03, 2018 1:01 pm
It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
OP, your thesis is, I believe, a common misconception. My background is the tech industry, and parts of that industry I understood pretty well as a relatively senior engineer. But here is what I don't know:

1) How to run a large corporation. There is a lot of stuff here .... how to manage your supply chain to keep costs low. How to attract and recruit good employees. How to allocate resources to competing projects (there is never enough money to fund everything you want). Lots of boring business stuff that actually matters to the company's success.

2) I don't know what the competitors are doing until after they do it. Maybe my company has a GREAT product. And a competitor comes out with an even better cheaper product thus killing sales for MY great product .....

3) I may or may not really understand my customers. Suppose I'm in software development. To REALLY understand the world I need to understand not only my technology, but also the people I sell products to (this can be a lot harder than it sounds). That is, if I sell product X to big oil companies, what they are doing affects me. Suppose big oil stops spending money because oil prices plummet. My sales to big oil plummet along with them. My stock does poorly. I could not foresee that by being a "techie."

I mean, you are partly correct; for example in the tech sector "analysts" do not necessarily understand the technology as well as people that do tech for a living. (Sometimes we would read research reports and find them quite wrong). But people working in a field often have less of an information advantage (which is basically how you would "beat the market") than you might think.

For your doctor example, sure they understand making people better (I hope!). But do they have a firm grasp of how to run a hospital? Or the regulatory environment? Or the business model employed by pharmaceutical companies?

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by arcticpineapplecorp. » Mon Sep 03, 2018 1:25 pm

by the way, the fine folks who worked at Enron thought they knew the company very well. They worked there after all. How'd that work out?
Same for the people who worked for Lehman Bros and lots of other companies too.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by Chip » Mon Sep 03, 2018 1:26 pm

steve321 wrote:
Mon Sep 03, 2018 1:04 pm
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
Sorry, there's no edge. How many doctors do you think know material non-public information about the drugs they prescribe? How many understand, in detail, the financials of the company that produces the drug? Compare that to an analyst (not a Fidelity fund manager) who spends all of their working hours analyzing 10 or 20 companies in the pharma industry. Who has more knowledge that's relevant to stock performance?

Yes, Peter Lynch was very successful. So was his book. But he did a major disservice to investors by telling them it was easy to pick stocks; just "buy what you know". By the way, he also told people that they could easily withdraw 7% a year from a stock portfolio in retirement without ever exhausting it. That was wrong, too. He forgot to consider sequence of return risk. Oops.

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 1:26 pm

ThriftyPhD wrote:
Mon Sep 03, 2018 1:21 pm
steve321 wrote:
Mon Sep 03, 2018 1:04 pm
Chip wrote:
Mon Sep 03, 2018 1:01 pm
It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
How does being a doctor give an edge on specific stocks?
new drugs and stuff like that. You can probably make a better estimate of the market for a new drug I guess.
Same for other businesses, you are in car sales, you probably can see how the market is going to go for a new model just out. Peter Lynch wrote about stuff like that and talked about it here I think (if I remember correctly):
https://www.youtube.com/watch?v=yhkp03gtzEw
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by 2pedals » Mon Sep 03, 2018 1:29 pm

In my experience, no. My biased opinions made me a lousy stock picker.

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by WanderingDoc » Mon Sep 03, 2018 1:30 pm

steve321 wrote:
Mon Sep 03, 2018 1:04 pm
Chip wrote:
Mon Sep 03, 2018 1:01 pm
It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
Correct. Specialized fields and medical subspecialists have informational advantages.

By the way - surgeons are doctors. :P
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by WanderingDoc » Mon Sep 03, 2018 1:31 pm

Chip wrote:
Mon Sep 03, 2018 1:26 pm
steve321 wrote:
Mon Sep 03, 2018 1:04 pm
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
Sorry, there's no edge. How many doctors do you think know material non-public information about the drugs they prescribe? How many understand, in detail, the financials of the company that produces the drug? Compare that to an analyst (not a Fidelity fund manager) who spends all of their working hours analyzing 10 or 20 companies in the pharma industry. Who has more knowledge that's relevant to stock performance?

Yes, Peter Lynch was very successful. So was his book. But he did a major disservice to investors by telling them it was easy to pick stocks; just "buy what you know". By the way, he also told people that they could easily withdraw 7% a year from a stock portfolio in retirement without ever exhausting it. That was wrong, too. He forgot to consider sequence of return risk. Oops.
The doctors I know investing in individual stocks outperform index funds, sometimes quite a lot. If they didn't, they wouldn't be doing it.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 1:34 pm

TN_Boy wrote:
Mon Sep 03, 2018 1:24 pm

I mean, you are partly correct; for example in the tech sector "analysts" do not necessarily understand the technology as well as people that do tech for a living. (Sometimes we would read research reports and find them quite wrong).
Exactly! That's one of the things that made me raise the question. I remember doing consultancy for a firm; then later on I talked to a money manager who invested heavily in that firm's stock - it was perhaps 5% of the fund. And I realised that he didn't really understand what the firm was developing! Though for my part I knew little about the economics of it, I still feel that I had an edge which could perhaps be applied somehow, if I can translate my technical knowledge to evaluating the company's stock's prospects.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by ThriftyPhD » Mon Sep 03, 2018 1:36 pm

steve321 wrote:
Mon Sep 03, 2018 1:26 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:21 pm
steve321 wrote:
Mon Sep 03, 2018 1:04 pm
Chip wrote:
Mon Sep 03, 2018 1:01 pm
It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
How does being a doctor give an edge on specific stocks?
new drugs and stuff like that. You can probably make a better estimate of the market for a new drug I guess.
Same for other businesses, you are in car sales, you probably can see how the market is going to go for a new model just out. Peter Lynch wrote about stuff like that and talked about it here I think (if I remember correctly):
https://www.youtube.com/watch?v=yhkp03gtzEw
By the time the doctor is aware of the new drug, so is everyone else. In fact, it's public knowledge for years before it goes on the market as part of the clinical trials process. The doctor would find out the clinical trial results when everyone else does; when the company discloses that information publicly.

Now, if the doctor is aware of a new drug result before it is disclosed to the public because they've been hired to study/develop it, they can't trade on that information without running afoul of insider trading laws.

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 1:39 pm

ThriftyPhD wrote:
Mon Sep 03, 2018 1:36 pm
steve321 wrote:
Mon Sep 03, 2018 1:26 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:21 pm
steve321 wrote:
Mon Sep 03, 2018 1:04 pm
Chip wrote:
Mon Sep 03, 2018 1:01 pm
It's a bad idea. The question you should ask is what do you know that the professionals in the market don't.

The answer is NOTHING.
I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
How does being a doctor give an edge on specific stocks?
new drugs and stuff like that. You can probably make a better estimate of the market for a new drug I guess.
Same for other businesses, you are in car sales, you probably can see how the market is going to go for a new model just out. Peter Lynch wrote about stuff like that and talked about it here I think (if I remember correctly):
https://www.youtube.com/watch?v=yhkp03gtzEw
By the time the doctor is aware of the new drug, so is everyone else. In fact, it's public knowledge for years before it goes on the market as part of the clinical trials process. The doctor would find out the clinical trial results when everyone else does; when the company discloses that information publicly.

Now, if the doctor is aware of a new drug result before it is disclosed to the public because they've been hired to study/develop it, they can't trade on that information without running afoul of insider trading laws.
Allright then, but WanderingDoc has written above from first hand experience that doctors do in fact beat the market by investing in the products they know.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by ThriftyPhD » Mon Sep 03, 2018 1:40 pm

steve321 wrote:
Mon Sep 03, 2018 1:39 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:36 pm
steve321 wrote:
Mon Sep 03, 2018 1:26 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:21 pm
steve321 wrote:
Mon Sep 03, 2018 1:04 pm


I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
How does being a doctor give an edge on specific stocks?
new drugs and stuff like that. You can probably make a better estimate of the market for a new drug I guess.
Same for other businesses, you are in car sales, you probably can see how the market is going to go for a new model just out. Peter Lynch wrote about stuff like that and talked about it here I think (if I remember correctly):
https://www.youtube.com/watch?v=yhkp03gtzEw
By the time the doctor is aware of the new drug, so is everyone else. In fact, it's public knowledge for years before it goes on the market as part of the clinical trials process. The doctor would find out the clinical trial results when everyone else does; when the company discloses that information publicly.

Now, if the doctor is aware of a new drug result before it is disclosed to the public because they've been hired to study/develop it, they can't trade on that information without running afoul of insider trading laws.
Allright then, but WanderingDoc has written above from first hand experience that doctors do in fact beat the amrket by investing in the products they know.
And there are people in my industry that talk about their genius stock picks too. They seldom talk about their losers.

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by eye.surgeon » Mon Sep 03, 2018 1:45 pm

Cant' wait to revisit this thread after the reversion to the mean.
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by TN_Boy » Mon Sep 03, 2018 1:46 pm

steve321 wrote:
Mon Sep 03, 2018 1:34 pm
TN_Boy wrote:
Mon Sep 03, 2018 1:24 pm

I mean, you are partly correct; for example in the tech sector "analysts" do not necessarily understand the technology as well as people that do tech for a living. (Sometimes we would read research reports and find them quite wrong).
Exactly! That's one of the things that made me raise the question. I remember doing consultancy for a firm; then later on I talked to a money manager who invested heavily in that firm's stock - it was perhaps 5% of the fund. And I realised that he didn't really understand what the firm was developing! Though for my part I knew little about the economics of it, I still feel that I had an edge which could perhaps be applied somehow, if I can translate my technical knowledge to evaluating the company's stock's prospects.
But when you quoted me, you deleted the part of my post where I was explaining why I think doing what you say in your last sentence is actually very very hard. You do not have the information advantage you think you do. There are many factors that go into a stock's success.

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by nisiprius » Mon Sep 03, 2018 1:48 pm

Steve321, I would like to ask whether you've read the Bogleheads investment philosophy. You don't have to agree with it, I just want to know if you've read it.

You are talking about stock-picking. Everybody who does stock-picking believes they can do it, or else they wouldn't. There are hundreds of theories about how to pick stocks.

Lots of people invest in individual stocks, and lots of them do OK. There are lots of sources that cater to people who want to pick stocks. Unfortunately, just as most gamblers believe that they can win, so do most stock-pickers. It takes quite a long time for people to decide they are not winning, particularly since most of us have the mental habit of remembering successes and forgetting failures. I have to say that many of us on Bogleheads are recovered stock-pickers who used to do it, and decided that it's irrelevant whether or not Peter Lynch can pick stocks, we can't.

In order to beat the market, it is not enough to know that you are investing in good companies. You have to believe something different from the market, and you have to be right and the market has to be wrong. We know that we are competing with professionals whose full-time job is analyzing one or two companies, traveling to their headquarters, meeting with people, with access to Bloomberg terminals and all kinds of resources we do not have. There is huge information asymmetry. In theory everyone is supposed to have access to the same information. In practice, it requires time and money which most of us do not have.

It is tempting to imagine that our everyday "fan" appreciation of some company's products amounts to special information, our own "edge." Those people who look at the cold hard numbers just don't get how cool Tesla is, whatever. Peter Lynch catered to that idea. I think it's completely wrong.

You need to know more than "everybody likes pizza, and I make a really good pizza" to open a successful restaurant.

You need to know more than how McDonald's burgers taste, now that they have fresh beef in them, to know whether McDonald's stock is a good buy or not.
Last edited by nisiprius on Mon Sep 03, 2018 1:49 pm, edited 1 time in total.
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by HEDGEFUNDIE » Mon Sep 03, 2018 1:48 pm

HomerJ wrote:
Mon Sep 03, 2018 1:23 pm
You can love a company's product, and the company can still be bad at making money.

We own multiple storage appliances (from one vendor) at my company that we LOVE. Solid performance, easy to use, great metrics, a dream storage appliance for our IT department. We like it so much we have 70% of our virtual infrastructure on it with near-zero issues.

This storage company had an IPO a year or two ago. My coworkers talked about buying the stock, since the product was so good.

This storage company recently went bankrupt.

Now, we're trying to find a replacement for it, or at least stock up on parts while we still can. Quite a headache. At least I didn't lose a ton of money in the stock as well.
It should be clear that putting your eggs in one basket is never a good idea. Tintri had a great scale-up product but poor sales management.

But if you were close to the storage industry over the past few years, you would have been witness to the rise of scale-out hyperconvergence, lead by Nutanix and VMware, both stocks that have left their traditional three stack infrastructure competitors in the dust. This is a fundamental shift in the way enterprises buy infrastructure, a stepping stone to full public cloud deployment.

It seems to me that any IT professional worth his/her credentials would be wise to take note of these trends and plan a career accordingly, and I would not fault them for putting some of their investment dollars there either.
Last edited by HEDGEFUNDIE on Mon Sep 03, 2018 2:28 pm, edited 4 times in total.

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by TN_Boy » Mon Sep 03, 2018 1:49 pm

ThriftyPhD wrote:
Mon Sep 03, 2018 1:40 pm
steve321 wrote:
Mon Sep 03, 2018 1:39 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:36 pm
steve321 wrote:
Mon Sep 03, 2018 1:26 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:21 pm


How does being a doctor give an edge on specific stocks?
new drugs and stuff like that. You can probably make a better estimate of the market for a new drug I guess.
Same for other businesses, you are in car sales, you probably can see how the market is going to go for a new model just out. Peter Lynch wrote about stuff like that and talked about it here I think (if I remember correctly):
https://www.youtube.com/watch?v=yhkp03gtzEw
By the time the doctor is aware of the new drug, so is everyone else. In fact, it's public knowledge for years before it goes on the market as part of the clinical trials process. The doctor would find out the clinical trial results when everyone else does; when the company discloses that information publicly.

Now, if the doctor is aware of a new drug result before it is disclosed to the public because they've been hired to study/develop it, they can't trade on that information without running afoul of insider trading laws.
Allright then, but WanderingDoc has written above from first hand experience that doctors do in fact beat the amrket by investing in the products they know.
And there are people in my industry that talk about their genius stock picks too. They seldom talk about their losers.
OP, you should understand that WanderingDoc makes a lot of claims. I don't want to derail this thread, but you should search his prior posts, and the very many responses to them, before deciding how to weight his assertion that he knows a bunch of doctors that outperform the market.

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by nedsaid » Mon Sep 03, 2018 1:54 pm

I would advise people to not invest in individual stocks. I have been at it for about 30 years and hold 22 stocks now. 18 in a Brokerage IRA and 4 in DRIP plans. Once upon a time, I took this really seriously and spend a fair amount of time researching. After the 2000-2002 bear market, I lost interest in the research and relied more upon my broker. What I found was that all that research made little difference. That suggests that markets are pretty efficient.

As far as I can tell, I have about tracked the market during the time I have owned individual stocks. It has been fun but probably not worth the effort. For one thing, you have to deal with the Annual Reports. I have a Morningstar subscription, so I can track analyst ratings and comments. I can do my own analysis. But certainly not researching with the rigor of the 1980's and 1990's. What I am trying to do is buy good or great companies at reasonable prices.

The research suggests that most individuals trail the market by about 4% annually doing this. I believe much of this is due to bad investor behavior. Chasing performance and too much trading. Trading has at least two pitfalls, one is the incorrect sell/buy decisions. That is the stocks you sell tend to outperform what you buy to replace! The incorrect sell/buy decisions outweigh the correct decisions by a ratio of 2:1 or even 3:1. This is what I call the infamous "Nedsaid effect." Research confirms this. My understanding is that the "Nedsaid effect" is not confined to individual investors but professional investors deal with this as well. The other drag on performance is from commissions to buy and sell, though in the era of discount brokers this is less of a factor. Unfortunately, the low fees encourage more trading which in turn magnifies the effect of incorrect sell/buy decisions.

Seeing that the sell decision is relatively difficult compared to the buy decision, I have developed an aversion to selling. Hence, my stocks tend to have long holding periods. This is one of the very few areas of life where laziness might be a virtue.

As I get older, I am considering selling the stock and replacing them with a combination of Vanguard Dividend Growth and Vanguard High Dividend. A lot of my individual stocks are listed in the holdings of Vanguard High Dividend. My individual stocks are about 12-13% of my retirement assets but they do complicate managing a portfolio.

As for as going with what I know, my stocks decidedly have a regional flavor. Some are headquartered in my Geographic area of the country. Others may not be headquartered here but have significant presence. But even Peter Lynch wouldn't just buy a stock because he likes the product or is familiar with the company. For him, familiarity is a source for new stock ideas but certainly he would perform more analysis before buying in. It is just a starting point.
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by TN_Boy » Mon Sep 03, 2018 1:59 pm

HEDGEFUNDIE wrote:
Mon Sep 03, 2018 1:48 pm
HomerJ wrote:
Mon Sep 03, 2018 1:23 pm
You can love a company's product, and the company can still be bad at making money.

We own multiple storage appliances (from one vendor) at my company that we LOVE. Solid performance, easy to use, great metrics, a dream storage appliance for our IT department. We like it so much we have 70% of our virtual infrastructure on it with near-zero issues.

This storage company had an IPO a year or two ago. My coworkers talked about buying the stock, since the product was so good.

This storage company recently went bankrupt.

Now, we're trying to find a replacement for it, or at least stock up on parts while we still can. Quite a headache. At least I didn't lose a ton of money in the stock as well.
It should be clear that putting your eggs in one basket is never a good idea.

But if you were close the storage industry over the past few years, you would have been witness to the rise of hyperconvergence, lead by Nutanix and VMware, both stocks that have left their traditional three stack infrastructure competitors in the dust.
Well maybe. If you look at Nutanix, are they actually making money? And for all these tech companies, there is substantial execution risk -- company X has a great, but almost always incomplete product.

The multi-billion dollar question then becomes, will company X execute to fix the product gaps well enough and fast to beat out competitors? If you think knowing the answer to that question is straightforward, even for industry insiders, you are wrong.

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 2:01 pm

nedsaid wrote:
Mon Sep 03, 2018 1:54 pm
My individual stocks are about 12-13% of my retirement assets but they do complicate managing a portfolio.
So if I understand correctly they make up about 20% of your total stocks (assuming you have also bonds in your retirement assets) and the rest of your stocks is in index funds?
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by TD2626 » Mon Sep 03, 2018 2:01 pm

It's worth noting that author (Adam Grossman) of the article the OP cited says in his last paragraph "I still believe that the best path for investors is to stick to low-cost index funds and to steer clear of stock-picking."

This isn't something that should be a main focus for long term investors. Having a small percent (say, 5) of the portfolio in individual stocks is likely not going to hurt too badly - but a small allocation like that wouldn't help much either. It's probably just a waste of time that could be better spent focusing on one's real job and trying to earn more money at that. Working longer hours and earning more in wages is a far more likely way to have more savings than spending one's evenings pouring over annual reports.

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by tibbitts » Mon Sep 03, 2018 2:02 pm

TN_Boy wrote:
Mon Sep 03, 2018 1:49 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:40 pm
steve321 wrote:
Mon Sep 03, 2018 1:39 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:36 pm
steve321 wrote:
Mon Sep 03, 2018 1:26 pm

new drugs and stuff like that. You can probably make a better estimate of the market for a new drug I guess.
Same for other businesses, you are in car sales, you probably can see how the market is going to go for a new model just out. Peter Lynch wrote about stuff like that and talked about it here I think (if I remember correctly):
https://www.youtube.com/watch?v=yhkp03gtzEw
By the time the doctor is aware of the new drug, so is everyone else. In fact, it's public knowledge for years before it goes on the market as part of the clinical trials process. The doctor would find out the clinical trial results when everyone else does; when the company discloses that information publicly.

Now, if the doctor is aware of a new drug result before it is disclosed to the public because they've been hired to study/develop it, they can't trade on that information without running afoul of insider trading laws.
Allright then, but WanderingDoc has written above from first hand experience that doctors do in fact beat the amrket by investing in the products they know.
And there are people in my industry that talk about their genius stock picks too. They seldom talk about their losers.
OP, you should understand that WanderingDoc makes a lot of claims. I don't want to derail this thread, but you should search his prior posts, and the very many responses to them, before deciding how to weight his assertion that he knows a bunch of doctors that outperform the market.
I believe everyone wanderdoc knows is above-average at everything related to investing (and probably life in general), so the rest of us have to consider that we might not fit that model.

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by Call_Me_Op » Mon Sep 03, 2018 2:07 pm

steve321 wrote:
Mon Sep 03, 2018 12:58 pm
Some people, like Peter Lynch, said that when it comes to picking stocks individuals have a distinct advantage over professionals.
That was in a different time. Much has changed.
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 2:08 pm

nisiprius wrote:
Mon Sep 03, 2018 1:48 pm
Steve321, I would like to ask whether you've read the Bogleheads investment philosophy. You don't have to agree with it, I just want to know if you've read it.

You are talking about stock-picking. Everybody who does stock-picking believes they can do it, or else they wouldn't. There are hundreds of theories about how to pick stocks.

Lots of people invest in individual stocks, and lots of them do OK. There are lots of sources that cater to people who want to pick stocks. Unfortunately, just as most gamblers believe that they can win, so do most stock-pickers. It takes quite a long time for people to decide they are not winning, particularly since most of us have the mental habit of remembering successes and forgetting failures. I have to say that many of us on Bogleheads are recovered stock-pickers who used to do it, and decided that it's irrelevant whether or not Peter Lynch can pick stocks, we can't.

In order to beat the market, it is not enough to know that you are investing in good companies. You have to believe something different from the market, and you have to be right and the market has to be wrong. We know that we are competing with professionals whose full-time job is analyzing one or two companies, traveling to their headquarters, meeting with people, with access to Bloomberg terminals and all kinds of resources we do not have. There is huge information asymmetry. In theory everyone is supposed to have access to the same information. In practice, it requires time and money which most of us do not have.

It is tempting to imagine that our everyday "fan" appreciation of some company's products amounts to special information, our own "edge." Those people who look at the cold hard numbers just don't get how cool Tesla is, whatever. Peter Lynch catered to that idea. I think it's completely wrong.

You need to know more than "everybody likes pizza, and I make a really good pizza" to open a successful restaurant.

You need to know more than how McDonald's burgers taste, now that they have fresh beef in them, to know whether McDonald's stock is a good buy or not.
I've read the Bogleheads investment philosophy. I've also seen Mr Clements praised by many Bogleheads, includng Mr Taylor Larrimore. Mr Clements is also an invited speaker on the Bogleheads annual conference; the fact that he has invited an author to publish in his blog an article on stock picking based on Lynch's principle of investing in what you know, encouraged me to raise the question since I believe it deserves consideration.
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by steve321 » Mon Sep 03, 2018 2:10 pm

Call_Me_Op wrote:
Mon Sep 03, 2018 2:07 pm
steve321 wrote:
Mon Sep 03, 2018 12:58 pm
Some people, like Peter Lynch, said that when it comes to picking stocks individuals have a distinct advantage over professionals.
That was in a different time. Much has changed.
were market less efficients then? Perhaps in some regions, in some ways less 'advanced', like Europe or EM, those principles may still be valid.
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by HEDGEFUNDIE » Mon Sep 03, 2018 2:10 pm

TN_Boy wrote:
Mon Sep 03, 2018 1:59 pm
HEDGEFUNDIE wrote:
Mon Sep 03, 2018 1:48 pm
HomerJ wrote:
Mon Sep 03, 2018 1:23 pm
You can love a company's product, and the company can still be bad at making money.

We own multiple storage appliances (from one vendor) at my company that we LOVE. Solid performance, easy to use, great metrics, a dream storage appliance for our IT department. We like it so much we have 70% of our virtual infrastructure on it with near-zero issues.

This storage company had an IPO a year or two ago. My coworkers talked about buying the stock, since the product was so good.

This storage company recently went bankrupt.

Now, we're trying to find a replacement for it, or at least stock up on parts while we still can. Quite a headache. At least I didn't lose a ton of money in the stock as well.
It should be clear that putting your eggs in one basket is never a good idea.

But if you were close the storage industry over the past few years, you would have been witness to the rise of hyperconvergence, lead by Nutanix and VMware, both stocks that have left their traditional three stack infrastructure competitors in the dust.
Well maybe. If you look at Nutanix, are they actually making money? And for all these tech companies, there is substantial execution risk -- company X has a great, but almost always incomplete product.

The multi-billion dollar question then becomes, will company X execute to fix the product gaps well enough and fast to beat out competitors? If you think knowing the answer to that question is straightforward, even for industry insiders, you are wrong.
You missed my point. I am not advocating for picking individual stocks, I agree that is a risky, likely loser’s game.

But there are major industry trends that do lend themselves to *groups* of companies within industries outperforming. Major shifts in technology or consumer preferences that change the way an industry’s value chain is apportioned. And insiders who are close to customers and product developers tend to understand these shifts better than the best placed equity research analysts (who by the way rely on those insiders for their data).

Prime example, if instead of buying “tech”, you bought enterprise cloud, you would have been way way ahead of the market. And the cloud transition is still in its early innings. https://www.bvp.com/strategy/cloud-computing/index

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by arcticpineapplecorp. » Mon Sep 03, 2018 2:23 pm

WanderingDoc wrote:
Mon Sep 03, 2018 1:31 pm
The doctors I know investing in individual stocks outperform index funds, sometimes quite a lot. If they didn't, they wouldn't be doing it.
then why aren't they stockjobbers instead of doctors? Wouldn't they make more money picking stocks if they can outperform index funds?

I'm not buying this claim without seeing proof. I would bet they're not tracking their true performance including costs/taxes, etc. Its more likely that some of their stock picks beat the market, most do average and some do poorly. When they talk with others they have selection bias and only remember the ones that beat the market.

And even if they have beat the market, what was their risk adjusted return? Were they compensated for having taken the additional risk? I would venture to say they probably don't know. They say "The market has returned 8% a year and my picks are up 12% a year" but don't realize they took twice the amount of risk as the market, so they should've gotten 16% a year, but didn't because they took risk they weren't compensated for taking.

I've known doctors who were horrible investors. They panicked and sold stocks in 2008 at a loss. They thought they should own individual stocks instead of the market, and so on. They thought they had special knowledge of their industry and so on. They didn't.

They really can't know anything about the companies in which they invest that anyone else doesn't already know, otherwise that would be considered insider trading. So they may think they have an informational advantage, but they don't really. Information only they have they can't profit from and information that is known to all isn't profitable (no one has an advantage to exploit).
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by WanderingDoc » Mon Sep 03, 2018 2:57 pm

arcticpineapplecorp. wrote:
Mon Sep 03, 2018 2:23 pm
WanderingDoc wrote:
Mon Sep 03, 2018 1:31 pm
The doctors I know investing in individual stocks outperform index funds, sometimes quite a lot. If they didn't, they wouldn't be doing it.
then why aren't they stockjobbers instead of doctors? Wouldn't they make more money picking stocks if they can outperform index funds?

I'm not buying this claim without seeing proof. I would bet they're not tracking their true performance including costs/taxes, etc. Its more likely that some of their stock picks beat the market, most do average and some do poorly. When they talk with others they have selection bias and only remember the ones that beat the market.

And even if they have beat the market, what was their risk adjusted return? Were they compensated for having taken the additional risk? I would venture to say they probably don't know. They say "The market has returned 8% a year and my picks are up 12% a year" but don't realize they took twice the amount of risk as the market, so they should've gotten 16% a year, but didn't because they took risk they weren't compensated for taking.

I've known doctors who were horrible investors. They panicked and sold stocks in 2008 at a loss. They thought they should own individual stocks instead of the market, and so on. They thought they had special knowledge of their industry and so on. They didn't.

They really can't know anything about the companies in which they invest that anyone else doesn't already know, otherwise that would be considered insider trading. So they may think they have an informational advantage, but they don't really. Information only they have they can't profit from and information that is known to all isn't profitable (no one has an advantage to exploit).
Plenty of reasons. Being a physician (in general) has more personal fulfillment, prestige, ability to help others, etc. Not every decision in life is a financial one. I for one, feel nauseated thinking about spending every day looking at numbers, calculations, spreadsheets, reading charts, statements to shareholders, and quarterly reports.
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by Jack FFR1846 » Mon Sep 03, 2018 3:02 pm

I know Craftsman tools from Sears really well. I have a huge collection of them and use them every day. I've broken the tools with abuse and love that the high school kid behind the counter doesn't know the difference between an 8" 1/2 inch ratchet that costs $19 and one that costs $89 because my tools are old enough that when they break, they tell me to just find another 8" ratchet. I come back with the $89 one and off I go.

So do you think I should buy a ton of Sears stock?
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by KyleAAA » Mon Sep 03, 2018 3:10 pm

No. It MAY have been an advantage in the 80s when Lynch advocates that approach that an individual investor buying what they know had a slight edge over the pros, but the pros have become exponentially more sophisticated since then. FWIW, my portfolio has outperformed Kanye’s over the past year simply because I happen to hold a ton of stock in my employer. Am I a genius investor?

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by Theoretical » Mon Sep 03, 2018 3:33 pm

Only if you can do insider trading, except that it’s illegal. Otherwise, it’s a fool’s game.

Extremely well-run companies can produce utter rubbish and companies that make great products can be money pits.

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by LadyGeek » Mon Sep 03, 2018 6:21 pm

steve321 wrote:
Mon Sep 03, 2018 12:58 pm
Some people, like Peter Lynch, said that when it comes to picking stocks individuals have a distinct advantage over professionals. If we as individuals stick to what we know, then we have an edge, and can beat the market.
This might be an explanation for the conundrum related to Kayne West's outperformance. The thread I started on that subject has now been locked [OT comment removed by admin LadyGeek]. I should now like to raise the question, related to that conundrum, of whether investing in individual stocks can be good if you stick to what you know. This is the contention of Humbledollar's author Adam Grossman, who used the Kayne West story to illustrate his point for the benefit of individual retail investors like ourselves:
https://humbledollar.com/2018/09/buy-what-you-know/
This thread was temporarily removed for moderator review. It is a restart of If the market is so hard to beat, why did a rapper beat it by 40%?, which was locked (not actionable).

After receiving a PM and working this out with the moderators, the OP is redirecting the discussion to Jonathan Clements' article on the same topic, but is addressed in an actionable manner.

Please continue the discussion and stay focused on the investing aspects.

If anyone has a question on a moderator action, please PM a moderator directly. See: Member Rights in a Dispute , second paragraph
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by Phineas J. Whoopee » Mon Sep 03, 2018 6:34 pm

WanderingDoc wrote:
Mon Sep 03, 2018 1:31 pm
...
The doctors I know investing in individual stocks outperform index funds, sometimes quite a lot. If they didn't, they wouldn't be doing it.
No true physician would invest in individual stocks and fail to outperform the stock market.

PJW

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by Mickey7 » Mon Sep 03, 2018 6:44 pm

It makes sense until it doesn't.

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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by PhilosophyAndrew » Mon Sep 03, 2018 6:45 pm

steve321 wrote:
Mon Sep 03, 2018 1:39 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:36 pm
steve321 wrote:
Mon Sep 03, 2018 1:26 pm
ThriftyPhD wrote:
Mon Sep 03, 2018 1:21 pm
steve321 wrote:
Mon Sep 03, 2018 1:04 pm


I mean suppose you're a doctor or a surgeon. The guy actively managing the big Fidelity fund will know much less than you about drugs and stuff like that; he will hold 50 or perhaps 100 stocks in his portfolio in all sorts of fields and he's an expert in none of them. Thanks to your specialised profession, you have an edge.
How does being a doctor give an edge on specific stocks?
new drugs and stuff like that. You can probably make a better estimate of the market for a new drug I guess.
Same for other businesses, you are in car sales, you probably can see how the market is going to go for a new model just out. Peter Lynch wrote about stuff like that and talked about it here I think (if I remember correctly):
https://www.youtube.com/watch?v=yhkp03gtzEw
By the time the doctor is aware of the new drug, so is everyone else. In fact, it's public knowledge for years before it goes on the market as part of the clinical trials process. The doctor would find out the clinical trial results when everyone else does; when the company discloses that information publicly.

Now, if the doctor is aware of a new drug result before it is disclosed to the public because they've been hired to study/develop it, they can't trade on that information without running afoul of insider trading laws.
Allright then, but WanderingDoc has written above from first hand experience that doctors do in fact beat the market by investing in the products they know.
We have no evidence about how frequently this occurs — or about how frequently stock-picking doctors fail to best the market. Without evidence like that, how are we to act on WanderingDoc’s anecdotal claim?


Andy.

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by 2pedals » Mon Sep 03, 2018 6:47 pm

HEDGEFUNDIE wrote:
Mon Sep 03, 2018 2:10 pm
And the cloud transition is still in its early innings.
That is one cloudy market forecast. :twisted:

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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by nisiprius » Mon Sep 03, 2018 6:57 pm

HEDGEFUNDIE wrote:
Mon Sep 03, 2018 2:10 pm
...But there are major industry trends that do lend themselves to *groups* of companies within industries outperforming. Major shifts in technology or consumer preferences that change the way an industry’s value chain is apportioned. And insiders who are close to customers and product developers tend to understand these shifts better than the best placed equity research analysts (who by the way rely on those insiders for their data)...
But how is the actionable by me, or by Steve321? You speak of "insiders." I assume you do not mean people who do engage in, or facilitate illegal insider trading. I assume you mean people who profit from information asymmetry--things that are theoretically public information, but difficult and expensive to learn. Things that they know, that I don't know, and that research analysts don't know.

But I'm not one of those insiders. And I don't think Steve321 is one of those insiders.

Appreciating what good hosiery L'Eggs made didn't make Peter Lynch's wife one of those insiders. Living 962 miles from Wall Street didn't make the Beardstown Ladies into insiders. Reading MacRumors--psst! lookit lookit! the new Apple Watch!--

Image

doesn't make me one of those insiders. So why should I care?
Last edited by nisiprius on Mon Sep 03, 2018 8:42 pm, edited 5 times in total.
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by Wakefield1 » Mon Sep 03, 2018 7:00 pm

Go in on your own and you may indeed outperform the market.
On the other hand,you undoubtedly have a much greater chance of losing most or all of your money (than if you invested with diversified mutual funds such as those Mr. Bogle pioneered. And some of those T. Rowe Price ones aren't so bad either in my opinion.
An opinion I have heard is that there are better mutual funds available to the casual investor today than was the case,say,in the 1960s. Did all funds used to be load funds?

[I must confess that I started out buying shares of individual stocks,at that time not having heard of Vanguard and having a fellow runner who happened to be a stockbroker and might have given me a break now and then on commission
part of his advice to me was to never let anyone or his firm to have permission to trade my shares at their pleasure or initiative]
Last edited by Wakefield1 on Mon Sep 03, 2018 7:54 pm, edited 1 time in total.

Nate79
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by Nate79 » Mon Sep 03, 2018 7:52 pm

How many threads are you going to post on the same basic topic? Hard to take it seriously.

sambb
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by sambb » Mon Sep 03, 2018 8:01 pm

Yes, it is possible to do better than index funds with stock picking or getting lucky. Warren buffet for example, and many others.
It is always better to work on one's career, to do better also. That would include many others, and the ROI is perhaps better. (Kanye was a teacher's kid, divorced parents, who used talents to become a very wealthy individual, also by "knowing" his market.)

I suspect that there are professionals out there that know their "market" better than wall street. But index funds can do well also. Maybe these professionals could alternatively focus on knowing their career to advance it, and let the investing fall to indexes.

My colleagues who started using iphones etc in the first gen knew it was a big deal, far before blackberry carrying wall street analysts (or steve ballmer) knew.

The end result is to make money, and some are happy just doing as well as the market. That may be all they need.

financeperchance
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Re: Does it make sense to invest in individual stocks (like Kanye West) if you stick to what you know?

Post by financeperchance » Mon Sep 03, 2018 8:16 pm

I'm surprised no one suggested to just do a shadow portfolio, comparing the results with VTI or VOO, dividends reinvested. That way you know, before risking real money, whether you can actually beat the market or not. (HINT: Most investors cannot beat even that dumb, simple, large-growth index that has USA country-bias!)

Fallible
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Re: Does it make sense to invest in individual stocks if you stick to what you know?

Post by Fallible » Mon Sep 03, 2018 8:44 pm

steve321 wrote:
Mon Sep 03, 2018 1:17 pm
arcticpineapplecorp. wrote:
Mon Sep 03, 2018 1:12 pm
thanks for posting. I'm very surprised to see this kind of article at Humble Dollar, which is Jonathan Clement's website. Jonathan does not advocate owning individual stocks to my knowledge, so I'm very surprised this advice is on his website.
Exactly, I was surprised too and that's why I thought it would be of interest to raise the question and discuss the topic.
Like you say in the end the author favours investing in index funds, but this is somewhat at odds with the reference he makes to Lynch ealier on
.
IMO it's not a worthwhile article for all this fuss and it's not at odds with indexing. He emphasizes that investors should own index funds, but if they want to try individual stocks, he recommends adding only a "a few to the mix" and cautions they be "manageable." This is also typical advice about "play" money.

Here's an interesting article on "The perils of Investing What You Know" by Carl Richards.
https://bucks.blogs.nytimes.com/2013/04 ... -you-know/
Last edited by Fallible on Tue Sep 04, 2018 9:33 am, edited 2 times in total.
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