Examples of why NOT to hold individual stocks

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retiredjg
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Examples of why NOT to hold individual stocks

Post by retiredjg » Sat May 23, 2020 9:59 am

We tell people not to hold a lot of individual stock because it is too risky. Some of them hear the words without getting the message.

I'm hoping the people here will add to this thread and develop a list of seemingly "good investments" that have had the bottom fall out since being perfectly fine a couple of months ago. Maybe this will help people who don't "get it" to understand why a broad market index fund is a better idea than holding some "good stocks".

The market has taken a bit of a beating, and more may be coming, but the market is likely to recover.

But what if a good portion of your portfolio had been invested in...Hertz? Hertz stock was about a $20 a share in Feb. Yesterday, they declared bankruptcy and their already declining stock fell almost to zero.

The ordinary people holding those stocks are pretty much SOL. Their investment is gone and I don't believe they will ever get their money back.

Hertz is not the first seemingly "good investment" that has done this in the last month or so. Just think, all was fine....and then it wasn't.

Don't put a lot of your portfolio into any individual stock (5% max). Don't even put a lot of your portfolio into a handful of individual stocks (10% max).

Investing in a broad market index fund of hundreds or thousands of stocks is safer.

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9-5 Suited
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Re: Examples of why NOT to hold individual stocks

Post by 9-5 Suited » Sat May 23, 2020 10:21 am

I don’t know how compelling additional lists of companies will be here. People who invest in individual stocks typically understand that some companies go bust, so listing off those companies isn’t likely to change their mind. I tend not to concern myself with the investment choices of others unless they ask for my opinion. Not everyone shares my aversion to high risk investments.

Patzer
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Re: Examples of why NOT to hold individual stocks

Post by Patzer » Sat May 23, 2020 10:44 am

retiredjg wrote:
Sat May 23, 2020 9:59 am
Don't put a lot of your portfolio into any individual stock (5% max). Don't even put a lot of your portfolio into a handful of individual stocks (10% max).

Investing in a broad market index fund of hundreds or thousands of stocks is safer.
I agree with the 5% rule on one stock. In fact, with 1 exception I don't have more than 1% in any stock.
That said, I don't agree with the 10% rule on individual stocks.
Indexes are just investing in a lot of individual stocks.

AAPL and MSFT make up more than 5% of the S&P 500.
In some non-US markets the biggest company is 20% of their Index (Korea, Taiwan, etc.).

Someone investing 1% in 100 different individual stocks spread across all industries would actually be more diversified than many index funds.
That would require a lot of work, and is probably not worth the effort unless you particularly enjoy doing market research.

I do enjoy market research, but I don't have 100 good ideas.
My current allocation is 17% individual stocks (in 15 stocks), 60% Equity Indexes, 5% Gold, 18% Fixed Income.

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retiredjg
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Re: Examples of why NOT to hold individual stocks

Post by retiredjg » Sat May 23, 2020 10:53 am

Patzer wrote:
Sat May 23, 2020 10:44 am
That said, I don't agree with the 10% rule on individual stocks.
Well good because that's not what I said or meant. :D

I suggested no more than 10% if you want to hold a handful of individual stocks. For example, if you wanted to hold 5 individual stocks all at 5% of portfolio, that is probably not a great idea.

An investor who wants to hold a good number of properly diversified individual stocks is not what I am talking about.

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Re: Examples of why NOT to hold individual stocks

Post by Rosencrantz1 » Sat May 23, 2020 11:02 am

Luckin Coffee - supposedly 'the Starbucks' of China.

the CFO and CEO are being investigated for inflating sales figures. Stock peaked at about $50/share early this year - now trading for about $1.40/share.

That said, I do own a few individual stocks - AAPL, MCD and MGM.

BH+
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Re: Examples of why NOT to hold individual stocks

Post by BH+ » Sat May 23, 2020 11:11 am

Most people who invest in individual stocks carry a relatively diversified portfolio (but not as diversified as a broad-based index fund). The bigger risk is not a stock going bust (where you can only lose 100% of the position), but missing on big gains on ten-baggers etc (I believe Dr. Bernstein stresses this latter point).

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Re: Examples of why NOT to hold individual stocks

Post by Halicar » Sat May 23, 2020 11:18 am

A few years ago when I knew next to nothing about investing, I thought I'd try my hand at stock picking. I decided that to balance out my "risky" picks, I would also hold a "safe" pick that was sure to go up slowly but steadily. For that I chose 3M, thinking I couldn't go wrong. Needless to say, my risky picks tanked and 3M sputtered.

Fortunately it was not a large amount, so it was a relatively inexpensive lesson.

Patzer
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Re: Examples of why NOT to hold individual stocks

Post by Patzer » Sat May 23, 2020 11:28 am

retiredjg wrote:
Sat May 23, 2020 10:53 am
Patzer wrote:
Sat May 23, 2020 10:44 am
That said, I don't agree with the 10% rule on individual stocks.
Well good because that's not what I said or meant. :D

I suggested no more than 10% if you want to hold a handful of individual stocks. For example, if you wanted to hold 5 individual stocks all at 5% of portfolio, that is probably not a great idea.

An investor who wants to hold a good number of properly diversified individual stocks is not what I am talking about.
Yea, I agree 5 @ 5% is not a good idea.
I think we are on the same page. :)

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William Million
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Re: Examples of why NOT to hold individual stocks

Post by William Million » Sat May 23, 2020 11:46 am

Yes, always a good reminder. I actually have 7% in a single stock, way too much. It's up over 20x since I bought it in the 1990s.

Hard part of selling has been tax bite. However, I will start to do so next year as my income drops in the 1st year of retirement.

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Re: Examples of why NOT to hold individual stocks

Post by Robot Monster » Sat May 23, 2020 12:59 pm

retiredjg wrote:
Sat May 23, 2020 9:59 am
.
Investing in a broad market index fund of hundreds or thousands of stocks is safer.
This has me wondering if that many is overkill. Vanguard Mega Cap ETF (MGC) has 261 stocks--that's still a lot...Invesco S&P 500 Top 50 ETF(XLG) has only 54 holdings--but it's top holding, Microsoft, has a whopping 10.52% of the portfolio...Vanguard Wellington, on the other hand has 64 stocks, and keeps its largest holding (also Microsoft) at bay with 4.3% of the portfolio. Vanguard Wellesley has a similar number of stocks as Wellington. Vanguard Windsor has 125 stocks.

I don't like the idea of owning so many stocks I have no idea what they are, owning companies I've never even heard of. Don't get me wrong, I still do it, I own index funds, but it's a point of discomfort.
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Re: Examples of why NOT to hold individual stocks

Post by am » Sat May 23, 2020 1:02 pm

I hold about 1.25% of assets in individual stocks and have no regrets. It’s fun and I have done really well. Boglehead indexing is not the only way, although I chose that road for myself with most of my assets.

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Re: Examples of why NOT to hold individual stocks

Post by Bratbill » Sat May 23, 2020 2:31 pm

Agree that owning Hertz isn’t a big deal if you are properly diversified in your stock choices.
Indexing is just a cheaper,easier way of diversifying your risk....and reward.
Seems like many BH folks have a few stocks in side accounts .
Might be more interesting to make a list of what those are...since the level of intelligence here is better than most places. I’d bet they’d mostly be similar blue chip, Lotta dividend paying stalwarts😀...

am
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Re: Examples of why NOT to hold individual stocks

Post by am » Sat May 23, 2020 4:01 pm

Bratbill wrote:
Sat May 23, 2020 2:31 pm
Agree that owning Hertz isn’t a big deal if you are properly diversified in your stock choices.
Indexing is just a cheaper,easier way of diversifying your risk....and reward.
Seems like many BH folks have a few stocks in side accounts .
Might be more interesting to make a list of what those are...since the level of intelligence here is better than most places. I’d bet they’d mostly be similar blue chip, Lotta dividend paying stalwarts😀...
Some of mine are non profitable microcap biotechs :shock:

youngpleb
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Re: Examples of why NOT to hold individual stocks

Post by youngpleb » Sat May 23, 2020 5:16 pm

You can't just pick a random stock that tanked and use it as an example to not hold single stocks...

Counter example: my small oil stock is up nearly 200% since I bought it 2 months ago. But that isn't a reason to hold individual stocks.

am
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Re: Examples of why NOT to hold individual stocks

Post by am » Sat May 23, 2020 5:30 pm

I’m thinking that total stock market fund is the safest bet for the long term, that is forever. While individual stocks not so much as today’s best companies become tomorrow’s losers. We’ve seen this throughout history and no one can predict it.

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climber2020
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Re: Examples of why NOT to hold individual stocks

Post by climber2020 » Sat May 23, 2020 5:53 pm

Here's a classic from 2014. This is the company that was making sapphire screens for the upcoming iPhones. "But iPhones don't have sapphire screens!" No they do not.

I remember reading this disaster as it unfolded in real time.

GT Advanced Technologies

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Re: Examples of why NOT to hold individual stocks

Post by retired@50 » Sat May 23, 2020 6:02 pm

Post a "mountain" chart of GE that goes back 40 or 50 years. Maybe that will help get the point across. Even if the company doesn't go out of business, you might wait around for 15 years to "break even".

Regards,
This is one person's opinion. Nothing more.

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celia
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Re: Examples of why NOT to hold individual stocks

Post by celia » Sat May 23, 2020 6:33 pm

The primary stock you should not hold is that of your employer, since if things turned bad for them, you might lose your job AND your savings AT THE SAME TIME!

This doesn't mean you shouldn't buy discounted employee stock, but you should sell it when you buy the following batch.

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Re: Examples of why NOT to hold individual stocks

Post by SquirrelEater » Sat May 23, 2020 6:37 pm

Image

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Re: Examples of why NOT to hold individual stocks

Post by dukeblue219 » Sat May 23, 2020 6:53 pm

climber2020 wrote:
Sat May 23, 2020 5:53 pm
Here's a classic from 2014. This is the company that was making sapphire screens for the upcoming iPhones. "But iPhones don't have sapphire screens!" No they do not.

I remember reading this disaster as it unfolded in real time.

GT Advanced Technologies
Whoa. I just spent far too long reading that. There are TONS of people posting that they just lost their entire retirement fund or their kids' entire college fund. Some had taken out loans to buy that stock, too.

I don't think people should focus on individual stocks, but it's not going to ruin them to have a dozen stocks and a couple big funds. Putting all your eggs in one basket of a manufacturer hoping to win a major deal with Apple? Stunningly bad judgment, and truly sad to read.

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Re: Examples of why NOT to hold individual stocks

Post by 02nz » Sat May 23, 2020 7:16 pm

A relative put his entire IRA into a single stock (not the employer), against my advice. The IRA is now worth around $7K, original cost was close to $500K. :oops: This person is well beyond normal retirement age but still working full time, because his retirement savings basically went to 0.

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Re: Examples of why NOT to hold individual stocks

Post by firebirdparts » Sat May 23, 2020 7:26 pm

youngpleb wrote:
Sat May 23, 2020 5:16 pm
You can't just pick a random stock that tanked and use it as an example to not hold single stocks...

Yes you can. That is absolutely something you can do. Act accordingly.
A fool and your money are soon partners

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Re: Examples of why NOT to hold individual stocks

Post by TSPballer » Sat May 23, 2020 9:33 pm

I know I'll be in the minority here but I have over half of my total portfolio (over 6 figures) in just 5 individual stocks (AAPL, V, FB, NVDA, BRK.B).

Now this wasn't intentional, as I amassed this in my younger days and was very A.) fortunate to have made some unintentional solid picks and B.) cut losing stocks very early on at small losses.

Having said all that, I am now in the process of unloading these winners slowly and moving the earnings into VT. This is all happening in my taxable account to match what I've implemented in my tax advantaged accounts (60/40 US/int'l).

I'll never completely stop trying to pick individual winners, but I definitely want to reduce some of this exposure.

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Re: Examples of why NOT to hold individual stocks

Post by tooluser » Sat May 23, 2020 9:51 pm

Long ago I had some Anthem Blue Cross stock (a for-profit insurer). One day they announced that they would be "changing their accounting practices", and the effect would be to decrease their earnings by 30%, **FOREVER**. The stock immediately nose-dived by 30%.

What they had really announced was that they had been engaging in fraudulent behavior for years. Why this was not a criminal act I will never understand. All of their corporate officers should have gone to prison, and should still be there.

This was one of the defining moments of my transition to being a Boglehead, and decreasing individual stocks to the point of irrelevancy. Anthem is still in business. Presumably they are laughing at the rest of mankind every day, **FOREVER**.

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Re: Examples of why NOT to hold individual stocks

Post by Grt2bOutdoors » Sat May 23, 2020 10:01 pm

Occidental Petroleum (OXY) - made a deal with Warren Buffett, in exchange for $10 billion in cash they gave WB convertible preferred stock with an 8% coupon and the right to acquire 80 million shares at a strike price of $62.50 a share. The company had the right at it's option to pay the dividend in the form of common stock if it so chose to. The price of OXY at the time of the deal was $46.31. At December 31, 2019, the price of a barrel of WTI was $62.61.

What happened next? Up until February of 2020, not much and then.....the bottom dropped out with the COVID-19 virus. The price of WTI went as low as zero, as in $0 on the futures markets, the price as of yesterday for WTI, 5/22 was $33.56. As a result of the change in the market for crude, Occidental found itself strapped for cash, so much so that it wound up electing to pay Warren Buffett in the form of stock, which diluted existing shareholders to the tune of 2% for the first quarter of 2020. The common stock dividend was reduced from $3.15 to $0.44 on an annual basis.

The closing stock price for Occidental Petroleum as of 5/22/20 is $14.13. The low in the price was $9.00. The market capitalization is $12.945 billion. The company has $38.5 billion of debt. Still think owing dividend paying stock is the way to go?
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Re: Examples of why NOT to hold individual stocks

Post by TechGuy365 » Sat May 23, 2020 10:24 pm

TSPballer wrote:
Sat May 23, 2020 9:33 pm
I know I'll be in the minority here but I have over half of my total portfolio (over 6 figures) in just 5 individual stocks (AAPL, V, FB, NVDA, BRK.B).

Now this wasn't intentional, as I amassed this in my younger days and was very A.) fortunate to have made some unintentional solid picks and B.) cut losing stocks very early on at small losses.

Having said all that, I am now in the process of unloading these winners slowly and moving the earnings into VT. This is all happening in my taxable account to match what I've implemented in my tax advantaged accounts (60/40 US/int'l).

I'll never completely stop trying to pick individual winners, but I definitely want to reduce some of this exposure.
I think they are all winners, congrats! I especially respect how NVDA reinvented themselves, transforming a company making graphics cards to one focusing on GPUs and processors to one on data centers and specialty tasks like AI. BRK.B itself is diverse, and AAPL and FB are profit machines.

I too am a minority here, with over 30% of net worth in one single stock. More if you count funds. I am comfortable and confident in this decision which had served me well over the past 15 years. I don't see myself making systematic changes to this any time soon.

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Re: Examples of why NOT to hold individual stocks

Post by langlands » Sun May 24, 2020 3:07 am

TechGuy365 wrote:
Sat May 23, 2020 10:24 pm
TSPballer wrote:
Sat May 23, 2020 9:33 pm
I know I'll be in the minority here but I have over half of my total portfolio (over 6 figures) in just 5 individual stocks (AAPL, V, FB, NVDA, BRK.B).

Now this wasn't intentional, as I amassed this in my younger days and was very A.) fortunate to have made some unintentional solid picks and B.) cut losing stocks very early on at small losses.

Having said all that, I am now in the process of unloading these winners slowly and moving the earnings into VT. This is all happening in my taxable account to match what I've implemented in my tax advantaged accounts (60/40 US/int'l).

I'll never completely stop trying to pick individual winners, but I definitely want to reduce some of this exposure.
I think they are all winners, congrats! I especially respect how NVDA reinvented themselves, transforming a company making graphics cards to one focusing on GPUs and processors to one on data centers and specialty tasks like AI. BRK.B itself is diverse, and AAPL and FB are profit machines.

I too am a minority here, with over 30% of net worth in one single stock. More if you count funds. I am comfortable and confident in this decision which had served me well over the past 15 years. I don't see myself making systematic changes to this any time soon.
Ok, I’ll bite. Which stock? :happy

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Re: Examples of why NOT to hold individual stocks

Post by CarpeDiem22 » Sun May 24, 2020 3:18 am

My father got a big stock grant after having worked for the same company for 30 years. A part of that grant funded my higher education, my sister's marriage among other things. But what remained went to almost zero. The stock went from 100+ to less than 2. It also led to my father retiring a little earlier than he had planned. So the financial outcome of holding a lot in single stock was pretty bad over last 5 years or so, especially relative to overall market growth.

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Re: Examples of why NOT to hold individual stocks

Post by CyclingDuo » Sun May 24, 2020 5:55 am

Grt2bOutdoors wrote:
Sat May 23, 2020 10:01 pm
Occidental Petroleum (OXY) - made a deal with Warren Buffett, in exchange for $10 billion in cash they gave WB convertible preferred stock with an 8% coupon and the right to acquire 80 million shares at a strike price of $62.50 a share. The company had the right at it's option to pay the dividend in the form of common stock if it so chose to. The price of OXY at the time of the deal was $46.31. At December 31, 2019, the price of a barrel of WTI was $62.61.

What happened next? Up until February of 2020, not much and then.....the bottom dropped out with the COVID-19 virus. The price of WTI went as low as zero, as in $0 on the futures markets, the price as of yesterday for WTI, 5/22 was $33.56. As a result of the change in the market for crude, Occidental found itself strapped for cash, so much so that it wound up electing to pay Warren Buffett in the form of stock, which diluted existing shareholders to the tune of 2% for the first quarter of 2020. The common stock dividend was reduced from $3.15 to $0.44 on an annual basis.

The closing stock price for Occidental Petroleum as of 5/22/20 is $14.13. The low in the price was $9.00. The market capitalization is $12.945 billion. The company has $38.5 billion of debt. Still think owing dividend paying stock is the way to go?
Grt2bOutdoors.- here's a perspective from Ben Carlson that he wrote this week you might enjoy reading:

The Best Source of Investment Income?
https://awealthofcommonsense.com/2020/0 ... nt-income/
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CyclingDuo
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Re: Examples of why NOT to hold individual stocks

Post by CyclingDuo » Sun May 24, 2020 5:56 am

retiredjg wrote:
Sat May 23, 2020 9:59 am
We tell people not to hold a lot of individual stock because it is too risky. Some of them hear the words without getting the message.

I'm hoping the people here will add to this thread and develop a list of seemingly "good investments" that have had the bottom fall out since being perfectly fine a couple of months ago. Maybe this will help people who don't "get it" to understand why a broad market index fund is a better idea than holding some "good stocks".

The market has taken a bit of a beating, and more may be coming, but the market is likely to recover.

But what if a good portion of your portfolio had been invested in...Hertz? Hertz stock was about a $20 a share in Feb. Yesterday, they declared bankruptcy and their already declining stock fell almost to zero.

The ordinary people holding those stocks are pretty much SOL. Their investment is gone and I don't believe they will ever get their money back.

Hertz is not the first seemingly "good investment" that has done this in the last month or so. Just think, all was fine....and then it wasn't.

Don't put a lot of your portfolio into any individual stock (5% max). Don't even put a lot of your portfolio into a handful of individual stocks (10% max).

Investing in a broad market index fund of hundreds or thousands of stocks is safer.
And the cherry picking of rotten cherries has begun... :oops:
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Re: Examples of why NOT to hold individual stocks

Post by flyninjasquirrel » Sun May 24, 2020 6:24 am

There are lots of people out there who know what they are doing and profit off of short term holding of individual stocks. They keep their risk low with adequate risk management strategies. Problem is most people don't know what they are doing. For me, long term buy and hold strategies of individual stocks is too much risk and I wouldn't do it.

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Re: Examples of why NOT to hold individual stocks

Post by happyisland » Sun May 24, 2020 7:05 am

I came of investing age in the dotcom era, so my path to becoming a Boglehead included such gems as Nortel, JDS Uniphase, Worldcom & Loral. All were borderline "can't miss" investments, given their entrenchment in the 'new economy'. I'm guessing that period alone set my retirement back by at least five years, but it did begin to teach me the valuable lesson that 'nobody knows nothing'. :sharebeer

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tvubpwcisla
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Re: Examples of why NOT to hold individual stocks

Post by tvubpwcisla » Sun May 24, 2020 7:08 am

Investing in Hertz and having it go bust is a big deal if you have 100% of your portfolio in Hertz.

Investing in Hertz and having it go bust is no big deal if you have less than 1/2 of a percent of your portfolio in Hertz.
Stay invested my friends.

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Re: Examples of why NOT to hold individual stocks

Post by jb1 » Sun May 24, 2020 8:26 am

What about blue chip stocks in general? although Id say Im 85% index funds, I do own:

Visa
Apple
Amazon
Alibaba
Boeing
Sq
Paypal

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Re: Examples of why NOT to hold individual stocks

Post by Robot Monster » Sun May 24, 2020 9:31 am

jb1 wrote:
Sun May 24, 2020 8:26 am
What about blue chip stocks in general? although Id say Im 85% index funds, I do own:

Visa
Apple
Amazon
Alibaba
Boeing
Sq
Paypal
Depends on your strategy for them. If you're going to hold onto them forever, take a look at the most valuable companies of the recent past,
https://m.youtube.com/watchv=8wvoj6jnlo8
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Re: Examples of why NOT to hold individual stocks

Post by TechGuy365 » Sun May 24, 2020 10:19 am

langlands wrote:
Sun May 24, 2020 3:07 am
TechGuy365 wrote:
Sat May 23, 2020 10:24 pm
I think they are all winners, congrats! I especially respect how NVDA reinvented themselves, transforming a company making graphics cards to one focusing on GPUs and processors to one on data centers and specialty tasks like AI. BRK.B itself is diverse, and AAPL and FB are profit machines.

I too am a minority here, with over 30% of net worth in one single stock. More if you count funds. I am comfortable and confident in this decision which had served me well over the past 15 years. I don't see myself making systematic changes to this any time soon.
Ok, I’ll bite. Which stock? :happy
Sorry didn't mean for it to be a cliffhanger! I'm fortunate to work for one of the top mega-techs, a prominent representatives of S&P. For many years I've kept most of my RSU grants and 401k+match (when it was still allowed) in company stock. I was lucky because I just didn't know any better when I was younger and kept it all instead of diversifying. All I knew was that I trust the company and leadership so I bet on it. I made good salary so didn't have to sell, so I put all the stocks away and didn't look or make big adjustments for well over 10 years. Had I found BH earlier I might have heed to the recommendations here and have sold immediately upon grant!

But now the company had proven itself (and to the market) and doing better than ever, I can't imagine selling it now!

I hear the skeptics and stories about Enron and Lehman Brothers. I can only say that the people I deal with everyday are smart, hard-working and accountable.

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Re: Examples of why NOT to hold individual stocks

Post by CyclingDuo » Sun May 24, 2020 11:04 am

TechGuy365 wrote:
Sun May 24, 2020 10:19 am
langlands wrote:
Sun May 24, 2020 3:07 am
TechGuy365 wrote:
Sat May 23, 2020 10:24 pm
I think they are all winners, congrats! I especially respect how NVDA reinvented themselves, transforming a company making graphics cards to one focusing on GPUs and processors to one on data centers and specialty tasks like AI. BRK.B itself is diverse, and AAPL and FB are profit machines.

I too am a minority here, with over 30% of net worth in one single stock. More if you count funds. I am comfortable and confident in this decision which had served me well over the past 15 years. I don't see myself making systematic changes to this any time soon.
Ok, I’ll bite. Which stock? :happy
Sorry didn't mean for it to be a cliffhanger! I'm fortunate to work for one of the top mega-techs, a prominent representatives of S&P. For many years I've kept most of my RSU grants and 401k+match (when it was still allowed) in company stock. I was lucky because I just didn't know any better when I was younger and kept it all instead of diversifying. All I knew was that I trust the company and leadership so I bet on it. I made good salary so didn't have to sell, so I put all the stocks away and didn't look or make big adjustments for well over 10 years. Had I found BH earlier I might have heed to the recommendations here and have sold immediately upon grant!

But now the company had proven itself (and to the market) and doing better than ever, I can't imagine selling it now!

I hear the skeptics and stories about Enron and Lehman Brothers. I can only say that the people I deal with everyday are smart, hard-working and accountable.
That's all true whether you work for Apple, Microsoft, Google, Intel, etc... . Do you not worry about the lack of owning a more diverse cross section of domestic and international businesses (such as a stake in every company as a shareholder)?

If both your salary and your investments are all tied up in one company, in spite of being surrounded by smart, hard-working and accountable people - you are putting your entire financial future at a much higher risk than is required.

JL Collins does a pretty decent job of explaining that to a crowd of employees at Google in this visit he made:

https://www.youtube.com/watch?v=T71ibcZAX3I

It could be a good time for you after 10 years at the company and having it all in company stock along with your salary, to begin adjusting your future allocations to a more conservative and diverse investment portfolio that will withstand the four or five decades ahead of you.

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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JonnyDVM
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Re: Examples of why NOT to hold individual stocks

Post by JonnyDVM » Sun May 24, 2020 11:35 am

climber2020 wrote:
Sat May 23, 2020 5:53 pm
Here's a classic from 2014. This is the company that was making sapphire screens for the upcoming iPhones. "But iPhones don't have sapphire screens!" No they do not.

I remember reading this disaster as it unfolded in real time.

GT Advanced Technologies
I remember this. Those poor people. So many talking about how they lost their life savings. My favorite part was one of the main touts in total denial when advised of the bankruptcy filing.

Personal example Amarin Corp- AMRN. It’s a company that makes a fish oil product for heart disease. My friends got in pretty deep and lost their shirts recently when they unexpectedly lost a patent challenge. I heard about how it was a “sure thing” from them so many times I lost count. I was much more guarded but still lost a few grand. I like to refer to it as Scamarin. I invest in individual stocks for kicks, but I would never overload into one. It’s just inviting disaster.
I’d trade it all for a little more | -C Montgomery Burns

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TechGuy365
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Re: Examples of why NOT to hold individual stocks

Post by TechGuy365 » Sun May 24, 2020 3:21 pm

CyclingDuo wrote:
Sun May 24, 2020 11:04 am

That's all true whether you work for Apple, Microsoft, Google, Intel, etc... . Do you not worry about the lack of owning a more diverse cross section of domestic and international businesses (such as a stake in every company as a shareholder)?

If both your salary and your investments are all tied up in one company, in spite of being surrounded by smart, hard-working and accountable people - you are putting your entire financial future at a much higher risk than is required.

JL Collins does a pretty decent job of explaining that to a crowd of employees at Google in this visit he made:

https://www.youtube.com/watch?v=T71ibcZAX3I

It could be a good time for you after 10 years at the company and having it all in company stock along with your salary, to begin adjusting your future allocations to a more conservative and diverse investment portfolio that will withstand the four or five decades ahead of you.

CyclingDuo
I appreciate the video, thank you. JL Collins is authentic, insightful and his recommendations are actionable. These would be the recommendation I would give to my own kids and other family members. To be sure, about 70% of my money are still in various stock funds, and all my new retirement contribution goes to funds. I don't have any other individual stocks and don't use any investment advisors. In fact he addressed the employee stock ownership in the Q&A section.

As the first comment indicates:
Moderator: Your in a room of above average intelligent people
JL Collins: Perhaps, but not in investing

Over time I can see myself diversifying and de-risking, just not yet. Maybe when I am ready to retire. :happy

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nedsaid
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Re: Examples of why NOT to hold individual stocks

Post by nedsaid » Sun May 24, 2020 11:17 pm

retiredjg wrote:
Sat May 23, 2020 9:59 am
We tell people not to hold a lot of individual stock because it is too risky. Some of them hear the words without getting the message.

I'm hoping the people here will add to this thread and develop a list of seemingly "good investments" that have had the bottom fall out since being perfectly fine a couple of months ago. Maybe this will help people who don't "get it" to understand why a broad market index fund is a better idea than holding some "good stocks".

The market has taken a bit of a beating, and more may be coming, but the market is likely to recover.

But what if a good portion of your portfolio had been invested in...Hertz? Hertz stock was about a $20 a share in Feb. Yesterday, they declared bankruptcy and their already declining stock fell almost to zero.

The ordinary people holding those stocks are pretty much SOL. Their investment is gone and I don't believe they will ever get their money back.

Hertz is not the first seemingly "good investment" that has done this in the last month or so. Just think, all was fine....and then it wasn't.

Don't put a lot of your portfolio into any individual stock (5% max). Don't even put a lot of your portfolio into a handful of individual stocks (10% max).

Investing in a broad market index fund of hundreds or thousands of stocks is safer.
I do hold individual stocks in my retirement accounts and they are about 11%-12% of my retirement portfolio. I hold 18 stocks there and 4 in DRIP plans. Since they are mostly Value stocks, they have been hit harder than US Total Stock Market. Also individual stock portfolios will be more volatile than the broad index funds. Stocks can blow up on you, Hertz investors found this out, single stock risk contributes to the greater volatility I just mentioned. If you hold individual stocks, you will have your disasters. Hopefully, you will have winners too.
A fool and his money are good for business.

Small Savanna
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Re: Examples of why NOT to hold individual stocks

Post by Small Savanna » Sun May 24, 2020 11:25 pm

I was a stock picker but I'm slowly getting away from it, and individual stocks are now about 10% of our total assets. The challenge in getting to zero is that some of them have substantial capital gains. You could think of that as another reason not to hold individual stocks - when you pick a good one and hold it for several years, it's "sticky" and hard to get rid of.

m@ver1ck
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Re: Examples of why NOT to hold individual stocks

Post by m@ver1ck » Sun May 24, 2020 11:45 pm

I only own msft - about 15% of my current asset allocation. 30% not counting invested stocks.

Stonks
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Re: Examples of why NOT to hold individual stocks

Post by Stonks » Mon May 25, 2020 12:36 am

Hi there - first post. Thanks for providing this forum. This is a great topic and my general takeaway is that most people own a few to a dozen individual stocks and I am similar: AMZN, PYPL and FDX to be exact. I've owned these since 2010 more or less and they've done well, but I know the risks.

One thing that many retail investors don't realize is that index funds actually something in common with a managed mutual fund in that they add and remove companies over time.

I will admit freely that once upon a time I didn't know this. I thought the index was always the same companies, tracked over the years. Silly me.

And humans approve those decisions, of course. There could be many reasons, of course, but in the recent downturn Macy's was removed from the SP500, for example.

MiloMoney
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Re: Examples of why NOT to hold individual stocks

Post by MiloMoney » Mon May 25, 2020 3:14 am

jb1 wrote:
Sun May 24, 2020 8:26 am
What about blue chip stocks in general? although Id say Im 85% index funds, I do own:
Paypal
I hope my colossal Paypal fees serve you well :beer

jb1
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Re: Examples of why NOT to hold individual stocks

Post by jb1 » Mon May 25, 2020 6:02 am

MiloMoney wrote:
Mon May 25, 2020 3:14 am
jb1 wrote:
Sun May 24, 2020 8:26 am
What about blue chip stocks in general? although Id say Im 85% index funds, I do own:
Paypal
I hope my colossal Paypal fees serve you well :beer
Haha! I am just trying to follow trends on what anyone under 30 does. “Just Venmo me” is something I hear nearly daily. Venmo of course owned by PayPal

Dandy
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Re: Examples of why NOT to hold individual stocks

Post by Dandy » Mon May 25, 2020 7:14 am

I worked for a major financial services company - Investment banking, brokerage, mutual funds -- the works. When I joined their stock was near 100. It went up, split and went well passed 100 again. Their 401k company match was in their stock, a percent of executive bonuses were in stock units that vested in a few years, etc. I joined them when I was in my 50's so I didn't get too heavily into the company stock -- and kept my exposure to about 5% of my portfolio.

The great recession hit. The company stock went from about 120 to 8 and stayed low. I was forced out with a nice severance. Of special note was as the stock was tanking the internal words were providing false hope e.g. reorganizing, new products, etc. They are still in business -but many of my fellow executives with long service had their dreams of a great retirement ruined whether they stayed or were forced out.

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CyclingDuo
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Re: Examples of why NOT to hold individual stocks

Post by CyclingDuo » Mon May 25, 2020 7:40 am

TechGuy365 wrote:
Sun May 24, 2020 3:21 pm
CyclingDuo wrote:
Sun May 24, 2020 11:04 am

That's all true whether you work for Apple, Microsoft, Google, Intel, etc... . Do you not worry about the lack of owning a more diverse cross section of domestic and international businesses (such as a stake in every company as a shareholder)?

If both your salary and your investments are all tied up in one company, in spite of being surrounded by smart, hard-working and accountable people - you are putting your entire financial future at a much higher risk than is required.

JL Collins does a pretty decent job of explaining that to a crowd of employees at Google in this visit he made:

https://www.youtube.com/watch?v=T71ibcZAX3I

It could be a good time for you after 10 years at the company and having it all in company stock along with your salary, to begin adjusting your future allocations to a more conservative and diverse investment portfolio that will withstand the four or five decades ahead of you.

CyclingDuo
I appreciate the video, thank you. JL Collins is authentic, insightful and his recommendations are actionable. These would be the recommendation I would give to my own kids and other family members. To be sure, about 70% of my money are still in various stock funds, and all my new retirement contribution goes to funds. I don't have any other individual stocks and don't use any investment advisors. In fact he addressed the employee stock ownership in the Q&A section.

As the first comment indicates:
Moderator: Your in a room of above average intelligent people
JL Collins: Perhaps, but not in investing

Over time I can see myself diversifying and de-risking, just not yet. Maybe when I am ready to retire. :happy
Ah! You're in good shape for sure with 70% in funds. Not sure how I missed that when posting a response earlier. My bad. Sounds like you are at least thinking of a plan regarding risk for the 30% of your overall portfolio currently in the company stock.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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retiredjg
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Re: Examples of why NOT to hold individual stocks

Post by retiredjg » Mon May 25, 2020 8:40 am

CyclingDuo wrote:
Sun May 24, 2020 11:04 am
JL Collins does a pretty decent job of explaining that to a crowd of employees at Google in this visit he made:

https://www.youtube.com/watch?v=T71ibcZAX3I
Thanks for posting this link. The interview is outstanding and well worth the time to listen.

This was my introduction to JL Collins (other than dabbling on the website some) and I found him pretty impressive.

Valueinvestor2
Posts: 23
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Re: Examples of why NOT to hold individual stocks

Post by Valueinvestor2 » Mon May 25, 2020 9:43 am

retiredjg wrote:
Sat May 23, 2020 9:59 am
We tell people not to hold a lot of individual stock because it is too risky. Some of them hear the words without getting the message.

I'm hoping the people here will add to this thread and develop a list of seemingly "good investments" that have had the bottom fall out since being perfectly fine a couple of months ago. Maybe this will help people who don't "get it" to understand why a broad market index fund is a better idea than holding some "good stocks".

The market has taken a bit of a beating, and more may be coming, but the market is likely to recover.

But what if a good portion of your portfolio had been invested in...Hertz? Hertz stock was about a $20 a share in Feb. Yesterday, they declared bankruptcy and their already declining stock fell almost to zero.

The ordinary people holding those stocks are pretty much SOL. Their investment is gone and I don't believe they will ever get their money back.

Hertz is not the first seemingly "good investment" that has done this in the last month or so. Just think, all was fine....and then it wasn't.

Don't put a lot of your portfolio into any individual stock (5% max). Don't even put a lot of your portfolio into a handful of individual stocks (10% max).

Investing in a broad market index fund of hundreds or thousands of stocks is safer.
This is a silly example to argue why to index. To take an example like this to make a point investing in individual stocks is a bad idea is deceiving and contributes to group think which there is no shortage of at BH.

Let’s break down the financials here after looking at this for 3 minutes. They were profitable for 1/4 years. They have $18B in debt at when it was $20 a share the company was $4B. The business is capita intensive bc you need to buy cars. There is no moat hence why there are so many other competitors in the space.

Literally a monkey could look at this for 3 minutes and determine its a terrible investment.

So again, it’s not fair to make blatant statements that investing in stocks is a bad idea. The s and p is filled with these garbage companies that are way over leveraged and my guess is we will see many more bk over next 1-2 years.

I have 30% of my net worth in 1 business and the rest in cash. The 1 company I own has enough cash to continue operations for 2-3 years to weather the storm. I am way more comfortable owning this than the s and p right now.

Also review the percentage of your top 10 holdings. It’s “concentrated” by BH definition yet I don’t hear anyone saying there is too much risk in owning such a large position of amazon or Facebook.

I agree 100% that most people should just buy and hold the index. The reality is diversification is an advantage for those who don’t know what their doing and a risk for those who know what they are doing.

lostdog
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Re: Examples of why NOT to hold individual stocks

Post by lostdog » Mon May 25, 2020 9:48 am

climber2020 wrote:
Sat May 23, 2020 5:53 pm
Here's a classic from 2014. This is the company that was making sapphire screens for the upcoming iPhones. "But iPhones don't have sapphire screens!" No they do not.

I remember reading this disaster as it unfolded in real time.

GT Advanced Technologies
I remember this. I thought this forum was removed. Amazing you found it. Very heartbreaking to read.
Global Market Cap Equity/1 Year Cash/Short Bonds || 25x Expenses

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