2020 was a great year for individual stock pickers

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bligh
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Re: 2020 was a great year for individual stock pickers

Post by bligh »

MinnGuyInvesting wrote: Tue Jan 12, 2021 1:29 pm
bligh wrote: Tue Jan 12, 2021 1:08 pm
MinnGuyInvesting wrote: Tue Jan 12, 2021 12:28 pm
bligh wrote: Tue Jan 12, 2021 12:10 pm I see so many similarities between today and the dotcom bubble.

The day trading. I personally have 4 people in my immediate friends circle that have taken up day trading, three of them do it full time now.

The stories in the press on newly minted bubble stock millionaires.

The complete disregard for fundamental valuations when pricing a stock. Back then the internet age had dawned and you better jump on the bandwagon or get left behind. Now it is the green age or AI age has dawned and you better jump on the bandwagon or get left behind.

Being told that you are out of touch for the new economy and getting made fun of when pointing the above out or shutting down rational conversation by discussing your massive gains over the last 6 months. ie. "You are obviously wrong, because look at how much more money I made compared to you in the market than you did". I remember when even Warren Buffet was being pressured and criticized as he sat out the dotcom years.
I think a couple things are different.

1. More education / accessibility. This will continue to evolve. You couldn't trade on an app (or if you could, people weren't in 2003).

2. More investing. People are "saving / investing" more after 2009. I believe this to be 100% true.

3. Right now people are worried about the value of the $$$ diminshing, so throwing money at big companies you believe will stick around is safer than holding cash (in people's opinions).

4. If you are indexing via any major index fund, you are adding to the problem by being heavily invested in Apple, Microsoft, facebook, amazon, Alibaba, etc.

None of these three factors indicate impending doom for the stock market.
Sure you can point out the many ways in which "it is different this time". They did that back in 1999 too.

“History Doesn't Repeat Itself, but It Often Rhymes” – Mark Twain.
History doesn't have to repeat itself for a timeframe designated by random BH'ers trying to prove me wrong. Trends only need to continue as long as I'm invested in those particular stocks or funds.
I wasn't trying to prove you wrong. Go back and look at my original message. I was only stating what I was seeing, and the similarities I saw with the Dotcom bubble. It was you who went out of your way to try tell me how it was different this time.

It's fine though, as I mentioned in my original post, I expected it. :)

Good luck.
garlandwhizzer
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Re: 2020 was a great year for individual stock pickers

Post by garlandwhizzer »

Stock picking in contrast to broadly based indexes changes the risk/reward tradeoff of the equity investing spectrum. Index investing accepts the market's tradeoff point between risk and reward and exposes the investor only to market risk and give only market reward. Stock picking also carries a considerable portion of that market risk/reward ratio but it adds to that another element, specific stock risk relative and specific stock reward. The investing outcomes are therefore wider to both upside and downside. Stock picking offers the chance to outperform indexes but also the chance to underperform. Stock pickers usually goes through alternating periods of outperformance and underperformance. There is a cost differential and a tax efficiency differential in favor of indexes between the two approaches due to increased trading/portfolio turnover.

It is not possible to conclude based on stock picking outperformance over the short or intermediate term that the approach will be successful long term. Many of us who are solidly in the index camp now started out doing stock picking for years before we realized over a long time span that we weren't outperforming indexes in a risk adjusted manner after costs. It is very easy in an exuberant bull market (like we've had for the last 12 years) to load up on the winners like TSLA, AMZN, FB, etc., and ride them to great results for more than a decade. One of the most common errors investors make is mistaking a powerful bull market for their own stock picking investing genius. There are very stock pickers who outperform in a risk adjusted manner comparable indexes after costs over multiple decades through multiple market cycles. IMO the odds are decidedly against it, but if you try, I wish you luck.

Most investors do not start out by choosing index investing which they believe to be "settling for average." Instead they may choose either individually or through active management to select only the good stocks that are going to outperform and avoid the bad stocks that are going to underperform. That is how most start out. It is, however, extremely very uncommon for investors who start out this way to end up this way. The odds for long term success for stock pickers are not IMO favorable relative to cheap broadly based indexes in terms of both risk adjusted return and degree of equity diversification.

Garland Whizzer
Dottie57
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Re: 2020 was a great year for individual stock pickers

Post by Dottie57 »

AlohaBill wrote: Tue Jan 12, 2021 12:27 pm Hi ,
I am retired. Most of my assets are in Vtinx ( 30/70). Our net investment increased by 132000 in the last 6 months. I picked Vtinx to pick stocks and bonds for us. Congratulations on your success.
About the same for me too. Basically a three fund portfolio. Made over 120k on 30/70 stocks to bonds.
That is over 2 years expenses for me. Financially a good year.
boglehat
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Re: 2020 was a great year for individual stock pickers

Post by boglehat »

000 wrote: Tue Jan 12, 2021 1:33 pm
boglehat wrote: Tue Jan 12, 2021 1:17 pm Mathematically, for every stock picker that beat the market, there was a stock picker that under-performed the market. There is no way around this, and 2020 was no different than any other year in this regard.

Only index fund investors performed as well as the market, sans fees.
Only true if you define index fund as total market fund.

Many individual stock pickers beat the S&P 500 committee stock pickers this year.
"Market" here is defined as whatever the stock picker trading on, and what the stock picker is benchmarking their their performance against (whether that be Total World Market in the purest form, or Total US Market, etc). The mathematical axiom holds.
000
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Re: 2020 was a great year for individual stock pickers

Post by 000 »

boglehat wrote: Tue Jan 12, 2021 3:25 pm
000 wrote: Tue Jan 12, 2021 1:33 pm
boglehat wrote: Tue Jan 12, 2021 1:17 pm Mathematically, for every stock picker that beat the market, there was a stock picker that under-performed the market. There is no way around this, and 2020 was no different than any other year in this regard.

Only index fund investors performed as well as the market, sans fees.
Only true if you define index fund as total market fund.

Many individual stock pickers beat the S&P 500 committee stock pickers this year.
"Market" here is defined as whatever the stock picker trading on, and what the stock picker is benchmarking their their performance against (whether that be Total World Market in the purest form, or Total US Market, etc). The mathematical axiom holds.
Well of course the axiom holds, that's the whole point of axioms. :D

TSLA investors bought it when it wasn't part of the S&P 500, so we thus benchmark against TSM and conclude the individual TSLA stock pickers beat the S&P 500 index fund.
boglehat
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Re: 2020 was a great year for individual stock pickers

Post by boglehat »

000 wrote: Tue Jan 12, 2021 3:34 pm
boglehat wrote: Tue Jan 12, 2021 3:25 pm
000 wrote: Tue Jan 12, 2021 1:33 pm
boglehat wrote: Tue Jan 12, 2021 1:17 pm Mathematically, for every stock picker that beat the market, there was a stock picker that under-performed the market. There is no way around this, and 2020 was no different than any other year in this regard.

Only index fund investors performed as well as the market, sans fees.
Only true if you define index fund as total market fund.

Many individual stock pickers beat the S&P 500 committee stock pickers this year.
"Market" here is defined as whatever the stock picker trading on, and what the stock picker is benchmarking their their performance against (whether that be Total World Market in the purest form, or Total US Market, etc). The mathematical axiom holds.
Well of course the axiom holds, that's the whole point of axioms. :D

TSLA investors bought it when it wasn't part of the S&P 500, so we thus benchmark against TSM and conclude the individual TSLA stock pickers beat the S&P 500 index fund.
Exactly. And for every "stock picker" that over-weighted TSLA, it follows that there must be other "stock pickers" that underweighted TSLA, with indexers in the middle of the two.
MindBogler
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Re: 2020 was a great year for individual stock pickers

Post by MindBogler »

arcticpineapplecorp. wrote: Sun Jan 10, 2021 10:03 pm two sides of every trade.

for every winner, there has to be a loser.

zero sum game.
That isn't true and is rather one-dimensional thinking. Winning and losing are relative to entry/exit points and so it is possible for two parties to win on the same trade. Play around with the TSLA chart for 2020 using just two hypothetical participants and you should easily convince yourself.
SantaClaraSurfer
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Re: 2020 was a great year for individual stock pickers

Post by SantaClaraSurfer »

Love all the perspective in this thread.

Thank you, I love to learn, and appreciate the hard won lessons.

About 1% of our investments are in individual stocks, most of which are employer shares so not really "picked."

Of the small remainder that I researched and picked myself, it was undoubtedly a great year for many of them.

I look like "a genius." (Especially the last week or two.) First one...then a second...then a third...of my picks shot up 90%+.

Do I think there are one heck of a lot of "geniuses like me" out there looking at their individual stock picks right now?

Yes.

However, I don't expect those gains to hold, and I wasn't intending to sell anytime soon in the first place. The similar rapid price increase without significant company news is, without a doubt, telling us something about the current marketplace.

You might be interested to know that I also experimented with Schwab Slices, which came out last year and let you buy small fractional shares of S+P 500 shares in $5 increments. To check my work I bought roughly equal amounts of an S+P 500 index fund at the same time.

My 3 Schwab Slice picks are up 6.6% so far.

The index fund over the same time frame is up 11.5%.

Not so genius.

Perhaps there's a lesson there.
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geerhardusvos
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Re: 2020 was a great year for individual stock pickers

Post by geerhardusvos »

I did so well at stockpicking in 2020!

I picked all of them (VTSAX)!

:beer
VTSAX and chill
Carguy85
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Re: 2020 was a great year for individual stock pickers

Post by Carguy85 »

I will be interested in a full follow up report Jan.10 2031
dboeger1
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Re: 2020 was a great year for individual stock pickers

Post by dboeger1 »

MindBogler wrote: Tue Jan 12, 2021 5:16 pm
arcticpineapplecorp. wrote: Sun Jan 10, 2021 10:03 pm two sides of every trade.

for every winner, there has to be a loser.

zero sum game.
That isn't true and is rather one-dimensional thinking. Winning and losing are relative to entry/exit points and so it is possible for two parties to win on the same trade. Play around with the TSLA chart for 2020 using just two hypothetical participants and you should easily convince yourself.
I mean, that's a fairly arbitrary definition of winning or losing in the context of a Bogleheads discussion about long-term investment strategies. Obviously, you can compare apples and oranges, or in this case, someone selling a share to pay for their retirement expenses to someone who's just starting out buying. But this isn't really a topic about time horizons or withdrawal strategies. The topic is really about active stock picking vs. passive index investing. If someone sells a share and it continues to go up, they may not necessarily have a loss on their brokerage statement, but they effectively lost that potential extra return relative to a buy-and-hold strategy. In that case, that extra return went to the new buyer.

In order for stock picking to beat indexing on average, the active stock picker would have to time the market well enough to gain outsized value beyond what the market delivers as a whole on average. This is mathematically impossible across all market participants. The average is the average. It cannot be that on average, market participants gain more than the market gains in any given year. Some do better than the market, some do worse, but on average, they get the average market return. That's before costs, but this topic wasn't even about costs, it was about whether stock pickers could, on average, have a "good year" relative to the total market. The answer is no, not if you define good to be better. If you define good to be less worse, I guess you could have a good year in which the average stock picker underperforms the total market by a lower amount than in other years... but the fact remains, they can never outperform on average. That is why the whole premise of this topic gets a lot of backlash, and mostly because Bogleheads care deeply about this stuff, not because they're mean, lol.
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Noobvestor
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Re: 2020 was a great year for individual stock pickers

Post by Noobvestor »

Narrator: It was, in fact, a normal year for stock pickers, who statistically performed 'average' due to inviolable laws of mathematics
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
MindBogler
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Re: 2020 was a great year for individual stock pickers

Post by MindBogler »

dboeger1 wrote: Tue Jan 12, 2021 9:04 pm I mean, that's a fairly arbitrary definition of winning or losing in the context of a Bogleheads discussion about long-term investment strategies. Obviously, you can compare apples and oranges, or in this case, someone selling a share to pay for their retirement expenses to someone who's just starting out buying. But this isn't really a topic about time horizons or withdrawal strategies. The topic is really about active stock picking vs. passive index investing. If someone sells a share and it continues to go up, they may not necessarily have a loss on their brokerage statement, but they effectively lost that potential extra return relative to a buy-and-hold strategy. In that case, that extra return went to the new buyer.
By that definition, given enough time, every seller ends up a loser. That doesn't make sense either. Buyers and sellers can have different motives, time horizons and objectives. Any transaction that results in two winners cannot be a zero sum game, by definition. Therefore, I flatly reject the characterization of the stock market as a zero sum game.
dboeger1
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Re: 2020 was a great year for individual stock pickers

Post by dboeger1 »

MindBogler wrote: Tue Jan 12, 2021 9:14 pm
dboeger1 wrote: Tue Jan 12, 2021 9:04 pm I mean, that's a fairly arbitrary definition of winning or losing in the context of a Bogleheads discussion about long-term investment strategies. Obviously, you can compare apples and oranges, or in this case, someone selling a share to pay for their retirement expenses to someone who's just starting out buying. But this isn't really a topic about time horizons or withdrawal strategies. The topic is really about active stock picking vs. passive index investing. If someone sells a share and it continues to go up, they may not necessarily have a loss on their brokerage statement, but they effectively lost that potential extra return relative to a buy-and-hold strategy. In that case, that extra return went to the new buyer.
By that definition, given enough time, every seller ends up a loser. That doesn't make sense either. Buyers and sellers can have different motives, time horizons and objectives. Any transaction that results in two winners cannot be a zero sum game, by definition. Therefore, I flatly reject the characterization of the stock market as a zero sum game.
I flatly reject your flat rejection, good sir!

It absolutely does make sense, although I still think your example is largely irrelevant to the topic being discussed in this thread. Yes, I 100% agree that a longer time horizon generally wins. That's pretty much the basis of compounding investment returns that we rely on. If you don't sell, you get more returns.

Now, I get why you reject that, but I think you're making a totally separate point. Yes, I guess you can consider someone who reaches retirement and is now spending from their portfolio a winner when they sell. But that's not what this topic is about. This topic isn't about whether or not you should sell to fund your retirement needs (I'm guessing close to 100% of Bogleheads would agree you should).

This topic is about whether or not stock picking was on average an advantageous investing strategy in 2020. It absolutely wasn't because it mathematically could not be, and that is true of every year (again, ignoring the extreme edge case of widespread free trades that I presented in an earlier reply, but let's ignore that for the time being).

By definition, stock pickers cannot on average outperform the market. Market participants are the market. The average return is the average of their returns. It's as simple as that. If one person buys a stock from another, they're trading future returns, positive or negative, amongst themselves.

You're right that the market isn't zero-sum in the sense that everybody's wealth can grow over time. However, it is zero-sum in the sense that trading activity cannot generate additional returns beyond the market average, because even if rampant trading activity did spur dramatic price increases, such as in a buying frenzy, then guess what? That also raises the market index. In other words, you can capture 100% of the market's average return by owning the market. Or, you can attempt active trading strategies. But the fact remains that by definition, on average, active traders will get the same average return as the market. Some will outperform, others will underperform. But it absolutely cannot be that on average, they outperform the market. That just doesn't make sense.

So in the most surface-level way, yes, I guess you could say stock pickers had a good 2020. It was a good year for the markets, despite extreme volatility. However, you absolutely cannot say that stock pickers had a better 2020 on average than the total market index. It just can't happen. Stock pickers will, on average, get the average market return. Some will do better. Some will do worse. Index investing is just the cheapest, simplest, most diversified way to guarantee that you get those average market returns too. On average, stock pickers and index investors will actually get the same returns before costs, because they ultimately ARE the market.

Another way to think of this is to imagine a car race. Let's keep it simple and just consider 2 cars, although the exact same is true for thousands of cars. You and a buddy go to a track and start making bets on who's going to win. You put your money on the blue car, and he puts his on the red car. The red car wins. After the race, you ask your buddy, "How was it that you picked the red car?" To which he replies, "It was a good year for car pickers." You see how that doesn't make sense? It literally can't be a good year for car pickers, because only the winning car picker can win, and the losers will lose. Your friend would be crazy to say something like, "Boy, car picking was such a good strategy this year, I think I'm going to bet my future retirement funds on individual car picks every year!"

I'm glad OP owned some winning stocks in 2020, I really am. But he's going to have a hard time convincing people on this board that stock picking is on average a superior strategy for all market participants, because it literally cannot be. It can only be great for the ones who happen to win.
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