This is a good question, and one that has been on my mind much in the past year or so. My current allocation is a little more than 13% cash, a little less than 1% in a single ETF, and the rest in individual issues (86%).
I started in single stocks because the people who I first hired for advice were biased that way. My few journeys into the world of mutual funds were disappointing (bought at the really wrong time) and soured me on them for a long time. That I am something of a control freak adds to my bias against someone else making decisions about how my money is invested.
Admittedly, I am to investing what Forrest Gump was to shrimping. My style? Well, it ain’t for everybody, and more than a few people have questioned my decisions with “Boy, are you stupid or something?” But I have always had a really long time horizon on my investments and, depending on your view, I either made some really good buy decisions or I was too stupid to sell when I should have.
Before the internet made it so easy to look at your portfolio value every day, I wouldn’t even look at monthly statements for months at a time. When I did, I would see a stock that had gone up significantly and wonder if I should sell. The next year I might open a statement and see the same stock was down by 50% and kick myself for not selling the previous year. But ultimately I would not sell because I was at least smart enough to realize it was a good company that wasn’t going out of business in the next decade or two, and with my time horizon it was all just pretend money until I actually sold.
It was only in the mid-to-late 1990’s, as the tech boom was making a lot of co-workers talk about how rich they were, that I started thinking about stocks differently. I missed the whole thing, not because I was smart, but because I was used to making decisions about a stock based on the underlying company’s prospects for staying in business and making a good profit. CNBC was on every television in every office and I started watching and trying to figure out what they hell those people were talking about – (momentum - what’s that?). I also remember drinking an overpriced beer at Enron Field in the spring of 2000 when everyone cheered Ken Lay as he told them how he was going to transform Enron into the premier internet service provider. It struck me at that moment that I must be the dumbest guy in the stadium, because I didn’t get it.
The bubble burst just about the time I decided that I would stick my toe in the tech waters (lucky for me, losing a toe is not fatal), and in the following years even my plain vanilla portfolio took a beating. I was thinking of retiring in 2000, but the pension wasn’t so great back then and with a devalued portfolio on my hands retirement would just mean going to work somewhere else.
The pension got much better and the portfolio has had a couple of very good years. My returns are, after 26 years, almost two points above the S&P, but the ups and downs have generally mirrored that index. Now I’m at the point where I have to decide how much time and energy I want to spend being an active investor, and what kind of return I get for time that I would rather spend doing something I really enjoy.
For the most part, I have left the plain-vanilla taxable investment alone, and concentrated my time and energy on a rollover-IRA at FIDO funded by the lump-sum portion of my pension (DROP). It was an experiment to see if I could do it, if I could get a good return, and how much time and energy it took.
It’s been a little over a year and in the IRA I’m up 4.2% compared to the S&P at –4.3, the NASDAQ -.77 and the DOW which is up 1.8%. (FIDO’s S&P 500 Index Mutual Fund (FSMKX) is down 5.14% for the past 12 months, and its other index funds are the same, so I guess I did even better compared to the products I could have bought.). Even the much beloved Wellesley is down 4.65% over the same time period.
So I made some money, and I did better than the overall market and at least some mutual funds, but compared to the amount of time I spent doing it I should have just gone and gotten a damn j*b. In fact, I have basically taken on a full-time j*b doing this. My golf clubs came out of the garage yesterday, the first time they have seen light in a year. The last time I went to the gym was before Thanksgiving. The list of stuff I have missed out on is way too lengthy.
Plus, given that it was an experiment and I wanted to see my results much sooner than a decade from now, I significantly shortened my time horizon. Result? Volatility sucks. There have been a few mornings when I almost called FIDO to tell them they had screwed up, because there was no way that XYZ stock could have lost 28% in one day. When you pay attention to this stuff every day you can get a little freaked out by the ride on the volatility train.
I was away from this forum for a while because I was spending all my time researching and learning, and I came back recently because I needed a good does of the sane common-sense that most people here give out. Thanks for that, by the way.
My conclusion is that I can, and will, continue to invest in individual stocks as long as it works for me. But playing with Mr. Market every day is not going to work for me, and I’m going back to looking out ten-to-twenty years. If that takes more than 5-10 hours a week to do properly, then I need to rethink and adjust. And as my investment time horizon starts to get shorter, or if I stop being good at it (or having Bubba Gump’s luck), it will definitely be time to move toward ETF’s, maybe some mutual funds, and you’ll hear me saying “…psst, Wellesly.”
