Individual Stocks - it isn’t just about picking winners vs losers

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manlymatt83
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Individual Stocks - it isn’t just about picking winners vs losers

Post by manlymatt83 »

I have exactly 9 holdings in my portfolio — 5 are ETFs, but 4 are individual stocks.

I have a bias towards these companies but don’t necessarily think they will outperform. One of them is Disney - I like Disney and I like owning Disney stock. But then I see that .46% of VT is Disney, so I already own a good amount, and still have a reason to “cheer” for it to do well.

Bogleheads, I’m getting close to deciding to cut my “play” portfolio and just stick to entirely my (mostly index) funds. I think that, if any of these stocks outperformed, I would trim them — not hold them — which would defeat the purpose of having the individual holdings (and reducing distraction) to begin with.

I can remember a few years ago I decided I wanted to only own individual stocks, and ended the day with 100 tickers in my portfolio, each at 1%. That didn’t last very long.

The only safe thing, in my opinion, is fewer holdings.

Anyone else retire from individual stocks, even in their “play” funds?
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by BroIceCream »

My personal goal is not to have individual stocks. I used to "play", and learned my lesson the hard way, and went to indexing. I've rid myself of all individual stocks except for two "highly-appreciated" holdings in my taxable account. Together they comprise 5% of my portfolio.
My plan is to exit them in a tax efficient manner over time.

I do make charitable contributions on a regular basis, and my current plan is to make charitable donations from these 'individual positions' via a Donor-advised Fund (available at most brokerages). This saves taxation on the gains, and allows the 'saved' cash to be used to buy into my existing index funds.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by manlymatt83 »

BroIceCream wrote: Wed Jan 13, 2021 12:53 am My personal goal is not to have individual stocks. I used to "play", and learned my lesson the hard way, and went to indexing. I've rid myself of all individual stocks except for two "highly-appreciated" holdings in my taxable account. Together they comprise 5% of my portfolio.
My plan is to exit them in a tax efficient manner over time.

I do make charitable contributions on a regular basis, and my current plan is to make charitable donations from these 'individual positions' via a Donor-advised Fund (available at most brokerages). This saves taxation on the gains, and allows the 'saved' cash to be used to buy into my existing index funds.
Thank you! I sold them all this morning, at significant gains. It's nice to see my spreadsheet get cut by 50%.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by ccf »

manlymatt83 wrote: Wed Jan 13, 2021 12:40 am I’m getting close to deciding to cut my “play” portfolio and just stick to entirely my (mostly index) funds
I've started doing just this. 5 positions closed, 4 to go. It feels good.

I'm close to retirement and "playing" with 5% of my portfolio has not brought me any joy.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by manlymatt83 »

ccf wrote: Wed Jan 13, 2021 1:26 pm
manlymatt83 wrote: Wed Jan 13, 2021 12:40 am I’m getting close to deciding to cut my “play” portfolio and just stick to entirely my (mostly index) funds
I've started doing just this. 5 positions closed, 4 to go. It feels good.

I'm close to retirement and "playing" with 5% of my portfolio has not brought me any joy.
Agreed! I don’t enjoy it. Either I tinker, which is a distraction, I change my mind when I have a loser (buy high, sell low), or most recently, I take gains off the table instead of letting them run. If I’m “playing” with my portfolio to try and see if I can hit a home run, but I’m not willing to give the outperformance a chance to fly, what’s the point. It’s an unnecessary distraction.

If I could buy 100 shares of Disney or Twitter today, and was forced to hold them for 40 years without the ability to sell, I might commit to that ... just to see what happens. But because accounts like that don’t readily exist, I am done with individual stocks.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by atdharris »

I have paired down my individual stock over the years, but I keep holding a good amount of FB, MSFT, AAPL, and AMZN that I avoid selling due to tax liabilities. At some point, I'll finally offload all of those, but I like the companies and have yet to see reason to dump them. The biggest risk I have is FB gets broken up or something like that.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by hnd »

I hold about 20 stocks currently. Before the pandemic i averaged 3-5. i played the occasional buy off of tips i got from people here or there. once the pandemic hit i threw a chunk of money in and began to play the game again. But the play is to sell when LTCG sets in later this spring. I may rebuy but likely will not on 75% of these and just go back to plinking and plunking here or there for the fun of it.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by ccf »

atdharris wrote: Wed Jan 13, 2021 1:36 pm I have paired down my individual stock over the years, but I keep holding a good amount of FB, MSFT, AAPL, and AMZN that I avoid selling due to tax liabilities. At some point, I'll finally offload all of those, but I like the companies and have yet to see reason to dump them. The biggest risk I have is FB gets broken up or something like that.
If someone made an ex-FAANG ETF I would be all over it. Then I could get closer to being back in balance without tax consequences.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Hector »

manlymatt83 wrote: Wed Jan 13, 2021 12:40 am Anyone else retire from individual stocks, even in their “play” funds?
I am not.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by atdharris »

ccf wrote: Wed Jan 13, 2021 1:38 pm
atdharris wrote: Wed Jan 13, 2021 1:36 pm I have paired down my individual stock over the years, but I keep holding a good amount of FB, MSFT, AAPL, and AMZN that I avoid selling due to tax liabilities. At some point, I'll finally offload all of those, but I like the companies and have yet to see reason to dump them. The biggest risk I have is FB gets broken up or something like that.
If someone made an ex-FAANG ETF I would be all over it. Then I could get closer to being back in balance without tax consequences.
As would I, but I don't think anyone has the stomach to do that. I know I am very overweight big tech, but they keep performing and their businesses are so incredibly solid, it makes no sense for me to sell and take the tax hit if they keep going higher.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by nigel_ht »

manlymatt83 wrote: Wed Jan 13, 2021 12:40 am I have exactly 9 holdings in my portfolio — 5 are ETFs, but 4 are individual stocks.

I have a bias towards these companies but don’t necessarily think they will outperform. One of them is Disney - I like Disney and I like owning Disney stock. But then I see that .46% of VT is Disney, so I already own a good amount, and still have a reason to “cheer” for it to do well.

Bogleheads, I’m getting close to deciding to cut my “play” portfolio and just stick to entirely my (mostly index) funds. I think that, if any of these stocks outperformed, I would trim them — not hold them — which would defeat the purpose of having the individual holdings (and reducing distraction) to begin with.

I can remember a few years ago I decided I wanted to only own individual stocks, and ended the day with 100 tickers in my portfolio, each at 1%. That didn’t last very long.

The only safe thing, in my opinion, is fewer holdings.

Anyone else retire from individual stocks, even in their “play” funds?
I keep a few stocks for play with and a few stocks just because I wan't them and they have some minor benefit to having them. Like RCL gives you some small amount of on board credit if you own $X stocks. I have APPL and BRK because one of these days I'd like to attend an annual meeting. Maybe I will, maybe I won't but I like em. I own DIS too also because I just like em and it's different when you own stocks vs in some index.

If 9 things are too many to keep track of I dunno what to tell you other than I don't bother to track APPL, RCL or DIS as part of my AA since the positions are so small. They aren't intended to make money.

Heck, I might buy a non-negotiable collectible DIS certificate (you must be a current shareholder to buy) just for kicks.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Robot Monster »

nigel_ht wrote: Wed Jan 13, 2021 2:18 pm
manlymatt83 wrote: Wed Jan 13, 2021 12:40 am ...One of them is Disney - I like Disney and I like owning Disney stock...
...I own DIS too also because I just like em and it's different when you own stocks vs in some index...
I think Disney is the best individual stock, because it appeals to the child inside us. Remember that old jingle, "I don't wanna grow up, I'm a Toys R Us Kid"? In this age of anxiety, I think it's natural enough to want to reconnect with our innocence. But there are other, less risky ways of achieving this goal, which we should all consider before messing around with our portfolios. :wink:
“There are no answers, only choices.” ― Stanislav Lem, Solaris
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by JoMoney »

I used to have an individual stock portfolio. I had noticed all sorts of 'feelings' about the stocks I owned, that I thought were potential for (if not already causing) behavioral issues. Things like picking a product at the store not because it was the best price (which usually weighs heavy on my choice), but because I knew the brand was part of a stock I owned and liked. It was definitely a 'distraction' if nothing else.
At any rate, I had long been familiar with Mr. Bogle and is work at Vanguard, but continued with my individual stock picking in-part with the justification that it was cheaper than whatever index funds ongoing ER was at the time. In 2008 I had a "come to Bogle" moment listening to my investing hero, Warren Buffett. I had also noticed that my performance on a total return basis over the years prior wasn't much better then the S&P 500. I have no idea what it would have been on a "risk adjusted" basis, but likely worse, I was certainly less diversified and didn't have any special information that wasn't available to everyone else in the market. I also had created a nightmare of to keep track of for taxes and other purposes. Index funds had started to drop fees <0.10% ER and it was looking much harder to justify individual stock portfolio for any sort of cost reason. I made the decision to follow Warren Buffett's advice.
I can't say I've never looked back, there were a few stocks that would have performed quite well after I sold them, but overall I have very few regrets. I do occasionally have temptations to get a little more selective with my portfolio, more often with regard to companies I don't want to be holding - sometimes because I don't understand the investment story behind the stock, sometimes because I have other open "issues" with the company or it's management. Ignoring those temptations is difficult at times, but if one decides to be a "passive investor" it's a slippery slope when you start making active decisions for performance or other reasons.
Benjamin Graham in The Intelligent Investor wrote:.. Investment policy, as it has been developed here, depends in the first place on a choice by the investor of either the defensive (passive) or aggressive (enterprising) role. The aggressive investor must have a considerable knowledge of security values—enough, in fact, to warrant viewing his security operations as equivalent to a business enterprise. There is no room in this philosophy for a middle ground, or a series of gradations, between the passive and aggressive status. Many, perhaps most, investors seek to place themselves in such an intermediate category; in our opinion that is a compromise that is more likely to produce disappointment than achievement.
As an investor you cannot soundly become “half a businessman,” expecting thereby to achieve half the normal rate of business profits on your funds.
It follows from this reasoning that the majority of security owners should elect the defensive classification. They do not have the time, or the determination, or the mental equipment to embark upon investing as a quasi-business. They should therefore be satisfied with the excellent return now obtainable from a defensive portfolio (and with even less), and they should stoutly resist the recurrent temptation to increase this return by deviating into other paths...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by ipdiddly »

Whether to own individual stocks or mutual funds or etf's or a mixture of these is a personal choice based on one's comfort zone. There is no right or wrong answer.
One advantage of owning a mutual fund or etf (e.g., VOO, VTI) is that you will inevitably have a decent, average return and don't have to think about what individual stocks the fund is holding or whether and how to rebalance. You set it and forget it. That simplicity may suit many people and it is an investment strategy strongly recommended on this forum.

However, it's also possible to create your own index comprising a selection of individual stocks. While this route may be a bit more complex, it does not necessarily have to be overly complex. You could literally examine the holdings of an index fund and buy the top 50-100 holdings or those holdings within the fund that you like. Rather than use cap weighting where you buy more of the top 10 and much less of the remaining stocks, you could equal weight them, then just let them ride. Some small number of them will do poorly and may even go bankrupt. Most of the group will perform about average (give or take). But a small handful may become superperformers and that's what will drive your returns. You don't have to rebalance. You can let your winners run. Why sell a superperformer so you can buy more of an also ran. This is one option. Undoubtedly, many on this forum will disagree and counsel against it.

I submitted a post illustrating how a 10 stock portfolio of boring stocks could outperform an index. See: viewtopic.php?f=10&t=335317&p=5718703#p5718703

This post was subjected to considerable criticism. Of course, I never suggested that anyone limit their portfolio to 10 stocks. And I fully recognize that backtesting any portfolio created today is subject to survival bias. The purpose of the post was merely to serve as an illustration.

The advantage of creating your own index is that there are no management costs. And you are in full control of your portfolio. You don't have to sell something in order to keep its percentage within the index parameters.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Northern Flicker »

I've never invested in an individual stock. Not only is it unnecessary to be successful, but it lowers the probability of success. That idiosyncratic risk is uncompensated and can be diversified away is well established, so it is just a matter of not allowing my ego to interfere.
Last edited by Northern Flicker on Thu Jan 14, 2021 12:44 am, edited 1 time in total.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by JoeRetire »

manlymatt83 wrote: Wed Jan 13, 2021 12:40 am I have a bias towards these companies but don’t necessarily think they will outperform. One of them is Disney - I like Disney and I like owning Disney stock.
If your goal is something other than making money with your investments, then perhaps it makes sense to own stocks in a company because you like them and you like owning part of them. I hear some folks purchased stock in the Green Bay Packers too. Maybe that was fun for them.

Otherwise, I don't think it makes sense.

The only individual stocks I own are of my former employer. I would dump them in a second if I didn't think they would make me a lot of money. (Of course I probably don't like them as much as you like Disney. The job was lucrative, but the company was not my favorite.)
Last edited by JoeRetire on Wed Jan 13, 2021 6:07 pm, edited 3 times in total.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Bluce »

I've never owned any single stock.

I started investing in 1990, as I was/am self-employed and needed some way of retiring.

I've never had anything except mutual or ET funds. No regrets, it's worked out well. :beer
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Carol88888 »

I used to invest in individual stocks and at first I thought I was beating the market. I am not sure that I actually was after paying taxes on the stocks I sold. But the problem for me was always having to be making more and more decisions.

I firmly believe that none of us are that good at making decisions. Therefore a strategy that doesn't depend on many decisions (what to buy? when to buy? when to sell?) is probably going to have superior returns.

All I know is that I felt immense relief after getting out of my stocks. I say this even though I then moved into index funds right in time for the March 2020 swoon. The thing is, with index funds you can be fairly certain that if you hang on, they will come back.

No such assurances with individual stocks. People don't focus on the fact that many stocks get removed from an index and never regain their glory. I don't know how long the average stocks stays in the S&P 500 but I think it might be shorter than most imagine.

Anyway, with the index fund I don't need to pick the winners in advance. The best stocks rise to the top and become bigger holdings without me doing any work. Not a bad deal.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Bluce »

Carol88888 wrote: Wed Jan 13, 2021 5:54 pm I used to invest in individual stocks and at first I thought I was beating the market. I am not sure that I actually was after paying taxes on the stocks I sold. But the problem for me was always having to be making more and more decisions.

I firmly believe that none of us are that good at making decisions. Therefore a strategy that doesn't depend on many decisions (what to buy? when to buy? when to sell?) is probably going to have superior returns.

All I know is that I felt immense relief after getting out of my stocks. I say this even though I then moved into index funds right in time for the March 2020 swoon. The thing is, with index funds you can be fairly certain that if you hang on, they will come back.

No such assurances with individual stocks. People don't focus on the fact that many stocks get removed from an index and never regain their glory. I don't know how long the average stocks stays in the S&P 500 but I think it might be shorter than most imagine.

Anyway, with the index fund I don't need to pick the winners in advance. The best stocks rise to the top and become bigger holdings without me doing any work. Not a bad deal.
I bought my first stock index fund, the Schwab 1000, SNXFX in the late '90s. I sold it around 10 years ago but have Schwab's total stock index, SWTSX as the main stock holding in my 30/70 PF.

I'm trying to get my buddy's kid to abandon single stocks, but he has had SWTSX for a few years now and I think he's starting to see the point of index investing. "You can lead a horse to water . . . " :mrgreen:
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by manlymatt83 »

Bluce wrote: Wed Jan 13, 2021 6:17 pm
Carol88888 wrote: Wed Jan 13, 2021 5:54 pm I used to invest in individual stocks and at first I thought I was beating the market. I am not sure that I actually was after paying taxes on the stocks I sold. But the problem for me was always having to be making more and more decisions.

I firmly believe that none of us are that good at making decisions. Therefore a strategy that doesn't depend on many decisions (what to buy? when to buy? when to sell?) is probably going to have superior returns.

All I know is that I felt immense relief after getting out of my stocks. I say this even though I then moved into index funds right in time for the March 2020 swoon. The thing is, with index funds you can be fairly certain that if you hang on, they will come back.

No such assurances with individual stocks. People don't focus on the fact that many stocks get removed from an index and never regain their glory. I don't know how long the average stocks stays in the S&P 500 but I think it might be shorter than most imagine.

Anyway, with the index fund I don't need to pick the winners in advance. The best stocks rise to the top and become bigger holdings without me doing any work. Not a bad deal.
I bought my first stock index fund, the Schwab 1000, SNXFX in the late '90s. I sold it around 10 years ago but have Schwab's total stock index, SWTSX as the main stock holding in my 30/70 PF.

I'm trying to get my buddy's kid to abandon single stocks, but he has had SWTSX for a few years now and I think he's starting to see the point of index investing. "You can lead a horse to water . . . " :mrgreen:
I wish Schwab had a solid international fund that including emerging markets. I really like SWTSX, but I stick with VTI/VXUS because they don't have a good VXUS replacement that includes EMs.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by ipdiddly »

I should supplement my earlier post. I started my investing life investing strictly in mutual funds and did that for many, many years. Then 2008-09 happened. That caused me to rethink my strategy. After all, if million dollar investment experts with a team of research analysts couldn't avoid a 40-50% market drop, what the hell am I paying them for? At that point, I started transitioning out of some of my funds (not all) and started investing in solid, dividend paying companies. I figured having a guaranteed 2-4% return via dividend on top of any potential growth in the underlying stock might serve as a cushion during the next downturn. The goal wasn't to beat the market. The goal was to prevent getting crushed. Plus I didn't have any surprise year end distributions from a mutual fund with a lackluster return that caused me to have significant reportable income.
I'm not against funds or etf's. I still own many. And I'm certainly in favor of index funds. I've recommended them to my son and daughter-in-law. I think there are many investment strategies and one needs to settle on one that's suitable for their needs.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Bluce »

manlymatt83 wrote: Wed Jan 13, 2021 6:21 pm I wish Schwab had a solid international fund that including emerging markets. I really like SWTSX, but I stick with VTI/VXUS because they don't have a good VXUS replacement that includes EMs.
Heh, I used to hold VXUS too. I've had some sort of foreign stock fund in my PF since around the mid-'90s, but read a lot of opinions in recent years on both sides. For better or worse, I got out of VXUS in 2019 and have no foreign stock any more.

Being old (70) I'm in a holding pattern at 30/70, don't really need any more growth.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Northern Flicker »

ipdiddly wrote: I figured having a guaranteed 2-4% return via dividend on top of any potential growth in the underlying stock might serve as a cushion during the next downturn.
There is no such thing as a guaranteed stock dividend. And the reason professional portfolio managers don't avoid 40-50% drops is that they understand the importance of staying the course and staying invested.

Asset class diversification (and not trying to time the equity markets) is the way generally to avoid 50% drops.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by geerhardusvos »

Bluce wrote: Wed Jan 13, 2021 5:42 pm I've never owned any single stock.
Ditto :beer
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by 000 »

The underlying holdings in a stock fund are, believe it or not, individual stocks.

And if you buy a cap-weighted index fund, that fund will not rebalance internally so you'll ride em up and you'll ride em down.

So if for whatever reason you're troubled by letting your winners run...
manlymatt83 wrote: Wed Jan 13, 2021 12:40 am I think that, if any of these stocks outperformed, I would trim them — not hold them — which would defeat the purpose of having the individual holdings (and reducing distraction) to begin with.
you should REALLY be troubled by the cap-weighted index fund.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Northern Flicker »

000 wrote: The underlying holdings in a stock fund are, believe it or not, individual stocks.
A diversified stock fund or portfolio of stock funds will diversify away idiosyncratic risk. Most individual investors do not have large enough asset levels to diversify an equity portfolio adequately without increasing transaction cost if at all.
ipdiddly wrote: After all, if million dollar investment experts with a team of research analysts couldn't avoid a 40-50% market drop, what the hell am I paying them for? At that point, I started transitioning out of some of my funds (not all) and started investing in solid, dividend paying companies.
Here is how the dividend aristocrat index fund compared to the S&P500 in terms of limiting the max drawdown since 1/1/2006:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Downside protection in the 2008/2009 downturn was unremarkable.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by 000 »

Northern Flicker wrote: Thu Jan 14, 2021 1:46 am
000 wrote: The underlying holdings in a stock fund are, believe it or not, individual stocks.
A diversified stock fund or portfolio of stock funds will diversify away idiosyncratic risk. Most individual investors do not have large enough asset levels to diversify an equity portfolio adequately without increasing transaction cost if at all.
I agree, but the risk of, say, twenty or more individual stocks in different industries is dominated by market, not idiosyncratic, risk.

And I'm not sure to what transaction costs you refer... VG and Fido are commission free and non-PFOF.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Northern Flicker »

20 is not enough to eliminate idiosyncratic risk fully. There is research that shows you need sbout 100 stocks to be assured of doing so, while 50-60 often is enough.

Transaction cost is in the spreads for the small positions held of each stock when the average individual investor hokds individual stocks. With a high enough net worth, holding 100 stocks might be feasible at reasonable cost similar, but most peoole are better off paying a few bp for a wrll managed index fund portfolio.
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by langlands »

Northern Flicker wrote: Thu Jan 14, 2021 3:18 am 20 is not enough to eliminate idiosyncratic risk fully. There is research that shows you need sbout 100 stocks to be assured of doing so, while 50-60 often is enough.

Transaction cost is in the spreads for the small positions held of each stock when the average individual investor hokds individual stocks. With a high enough net worth, holding 100 stocks might be feasible at reasonable cost similar, but most peoole are better off paying a few bp for a wrll managed index fund portfolio.
000 is right. Transaction costs used to be a much bigger deal for small accounts 2 years ago, but the move towards 0 commissions (thanks Robinhood!) has evened the playing field. The "expense ratio" so to speak for maintaining a portfolio of individual stocks is the same whether you have $10,000 or $1,000,000. In fact, it's actually less for the $10,000 account because of reduced market impact in your trades (probably not a big difference if you're trading mostly liquid names).
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Shallowpockets »

Carol88888 wrote: Wed Jan 13, 2021 5:54 pm I used to invest in individual stocks and at first I thought I was beating the market. I am not sure that I actually was after paying taxes on the stocks I sold. But the problem for me was always having to be making more and more decisions.

I firmly believe that none of us are that good at making decisions. Therefore a strategy that doesn't depend on many decisions (what to buy? when to buy? when to sell?) is probably going to have superior returns.

All I know is that I felt immense relief after getting out of my stocks. I say this even though I then moved into index funds right in time for the March 2020 swoon. The thing is, with index funds you can be fairly certain that if you hang on, they will come back.

No such assurances with individual stocks. People don't focus on the fact that many stocks get removed from an index and never regain their glory. I don't know how long the average stocks stays in the S&P 500 but I think it might be shorter than most imagine.

Anyway, with the index fund I don't need to pick the winners in advance. The best stocks rise to the top and become bigger holdings without me doing any work. Not a bad deal.
Your comments are well said. The crux of the matter is when you said none of us are good at making decisions. That is the essence of the BH. And many many others. They cannot make a decision. It is almost a pathological problem for many. And not just for stocks or funds, but all things in the world. You can see it here on the posts. There is always a thread on someone looking for information about a decision. Sometimes for the most trivial things. And then when they get many replies they continue to question. They want all the information possible before they commit, as in a decision. More data, more info, all the time. If you seek every bit of input possible, you never have to make a decisions because you may be short a data point that you think you need to know. Keep kicking the can down the road.
Even with the BH premises they cannot get past failure to execute. Reallocation, DCA, lump sum. A lot of anguish here.
rich126
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by rich126 »

manlymatt83 wrote: Wed Jan 13, 2021 12:40 am I have exactly 9 holdings in my portfolio — 5 are ETFs, but 4 are individual stocks.

I have a bias towards these companies but don’t necessarily think they will outperform. One of them is Disney - I like Disney and I like owning Disney stock. But then I see that .46% of VT is Disney, so I already own a good amount, and still have a reason to “cheer” for it to do well.

Bogleheads, I’m getting close to deciding to cut my “play” portfolio and just stick to entirely my (mostly index) funds. I think that, if any of these stocks outperformed, I would trim them — not hold them — which would defeat the purpose of having the individual holdings (and reducing distraction) to begin with.

I can remember a few years ago I decided I wanted to only own individual stocks, and ended the day with 100 tickers in my portfolio, each at 1%. That didn’t last very long.

The only safe thing, in my opinion, is fewer holdings.

Anyone else retire from individual stocks, even in their “play” funds?
Not sure how 0.46% is considered a good amount. That stock could go up 10X and it would have negligible effect on your portfolio.
Personally I prefer individual stocks but I couldn't imagine owning 100 individual stocks, maybe 10-30. After that it is tough to understand what you own and when you plan to sell or buy more of a stock unless you are doing it full time.

ETFs/index funds make life simpler, not always as rewarding but for many people, that isn't necessary.
Northern Flicker
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Northern Flicker »

langlands wrote: 000 is right. Transaction costs used to be a much bigger deal for small accounts 2 years ago, but the move towards 0 commissions (thanks Robinhood!) has evened the playing field.
Commissions are only one component of transaction cost. Bid-ask spreads tend to be higher for small parcel transactions but it is invisible because you only see the final transaction execution price.

Not sure the Robinhood investors who got fleeced by Robinhood scheduling suboptimal trade executions to increase order flow payments to Robinhood would be joining you in gratitude. Robinhood settled with the SEC for $65M in fines.

https://www.cnn.com/2020/12/17/investin ... index.html
Risk is not a guarantor of return.
langlands
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by langlands »

Northern Flicker wrote: Thu Jan 14, 2021 2:49 pm
langlands wrote: 000 is right. Transaction costs used to be a much bigger deal for small accounts 2 years ago, but the move towards 0 commissions (thanks Robinhood!) has evened the playing field.
Commissions are only one component of transaction cost. Bid-ask spreads tend to be higher for small parcel transactions but it is invisible because you only see the final transaction execution price.

Not sure the Robinhood investors who got fleeced by Robinhood scheduling suboptimal trade executions to increase order flow payments to Robinhood would be joining you in gratitude. Robinhood settled with the SEC for $65M in fines.

https://www.cnn.com/2020/12/17/investin ... index.html
Robinhood is a terrible broker. I'm thanking Robinhood for decreasing commission to zero for other brokers like Fidelity through the power of competition.

The price improvement does not go up with order size. For instance, take a look at https://www.schwab.com/execution-quality.

For an order size of around 179, the average savings per order is $5.08.
For an order size of around 2,678, the average savings per order is $24.37.

The savings per share for the larger order is less than half of that for the smaller order.

This is why large institutions break up their orders into little chunks. If bigger were better, everyone would trade in blocks of a million shares, which of course they don't. Large volume moves the price.
Northern Flicker
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Northern Flicker »

Institutions break up orders to avoid running up the price. Is an issue with very large orders, and they deal with it. It is outside the scope of issues for most retail investors, and has no bearing on whether a retail investor increases transaction cost by dividing assets up into 100 stocks instead of 20.

The wholesale brokers who pay order flow for baskets of retail transactions generally have a higher market share of retail business than of institutional business, so spreads can vary with both groups.

Market makers who cater to retail business like Citadel claim their spreads are tighter because of automated execution and being able to process many small retail trades from internal inventory without going out to the exchanges. Those features, along with order flow kickbacks paid out of the spreads born by retail investors, and not Robinhood, are what has pushed retail commissions to zero.

While I have sympathy with these claims about spreads of Citadel and other market makers catering to retail investors, I nonetheless do not believe that an individual trying to manage a portfolio of about 100 stocks can compete on trading cost with the professional trading desk at a large mutual fund company. And the fund can implement securities lending in a low risk manner to cover costs to eliminate tracking error.
Last edited by Northern Flicker on Thu Jan 14, 2021 6:00 pm, edited 1 time in total.
Risk is not a guarantor of return.
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SmileyFace
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by SmileyFace »

manlymatt83 wrote: Wed Jan 13, 2021 12:40 am
Anyone else retire from individual stocks, even in their “play” funds?
Yes - many years ago. It was a part time job that took a lot of time with little benefit.
000
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by 000 »

Northern Flicker wrote: Thu Jan 14, 2021 3:18 am 20 is not enough to eliminate idiosyncratic risk fully. There is research that shows you need sbout 100 stocks to be assured of doing so, while 50-60 often is enough.
I didn't say if would fully eliminate idiosyncratic risk, only that the overall risk would be dominated by market risk, not idiosyncratic risk. Also a person can use a core and explore approach, using indices for the core and individual stocks for their alpha portfolio.
Northern Flicker wrote: Thu Jan 14, 2021 3:18 am Transaction cost is in the spreads for the small positions held of each stock when the average individual investor hokds individual stocks. With a high enough net worth, holding 100 stocks might be feasible at reasonable cost similar, but most peoole are better off paying a few bp for a wrll managed index fund portfolio.
For an actual buy and hold long term position (what Bogleheads preach), the spread divided over say 20 years will almost certainly be less than the ER compounded over the same time. Mutual funds pay a spread too and ETF investors pay the spread themselves.
Northern Flicker wrote: Thu Jan 14, 2021 2:49 pm Commissions are only one component of transaction cost. Bid-ask spreads tend to be higher for small parcel transactions but it is invisible because you only see the final transaction execution price.

Not sure the Robinhood investors who got fleeced by Robinhood scheduling suboptimal trade executions to increase order flow payments to Robinhood would be joining you in gratitude. Robinhood settled with the SEC for $65M in fines.

https://www.cnn.com/2020/12/17/investin ... index.html
Robinhood is a non sequitur. I already gave two examples upthread of commission free retail brokers that do not receive Payment For Order Flow (PFOF) for US exchange listed stocks and ETFs.
gougou
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by gougou »

It's pointless to own 100 stocks with 1% weight each - you can't follow so many companies unless you are an investment company. You might as well just buy an index fund.

So if you can study 50 stocks and you identify a few good stocks that are the best out of them, why would you not bet heavily on them?

I own about 10 stocks and I follow 30 to 50 related stocks, and that's a lot of work already. My 10 stocks are in a few different sectors and each represents < 15% of the cost basis of my portfolio, so that's enough diversification for me. I bet heavily on the stocks that I believe are significantly undervalued and I let them run, taking profits only when they are somewhat overvalued, so the market value of a single stock could represent more than 15%.
Northern Flicker
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by Northern Flicker »

000 wrote: I didn't say if would fully eliminate idiosyncratic risk, only that the overall risk would be dominated by market risk, not idiosyncratic risk. Also a person can use a core and explore approach, using indices for the core and individual stocks for their alpha portfolio.
The more that the risk, and thus return is dominated by market exposure and the portfolio's beta, the less there is any opportunity to harvest any alpha. Alpha is idiosyncratic return. Variance of alpha is idiosyncratic risk.
Risk is not a guarantor of return.
MP173
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Re: Individual Stocks - it isn’t just about picking winners vs losers

Post by MP173 »

I own 18 individual stocks and have held most of them for 20 years or longer. The last stock purchased was Johnson Johnson in 2011. All dividends are reinvested into the stock in form of added shares.

I havent benchmarked these holdings in the last 12 months or so...should probably do so, but overall I have done quite well. To sell off would trigger a massive tax liability, which I am unwilling to do at this time.

Full disclosure, I also own S&P500 ETX and use Vanguard for several funds, mostly bonds and international. Also use Vanguard for Wellington.

Yes, I understand the risk involved. These 18 holdings are roughly 30% of investments, so it is a significant amount. It is not 'play money'. These investments were made after doing considerable research and following Warren Buffett style of investing.

My regret is that I did NOT purchase Berkshire Hathaway. My thought was that Buffett and Munger would retire soon (back in mid 90s). Oops.

My advise to my adult children - buy the S&P or Total Market. One does buy individual stocks and the S&P, the other is funding retirement only as he is just starting his adult career.

Ed
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