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Funny (to me anyway), But Oh So True
Old 09-28-2012, 01:58 PM   #1
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Funny (to me anyway), But Oh So True

I saw this on another financial message board that I frequently read. The thread was about an article listing 10 money management misconceptions people have - which most on this board would probably agree with. One misconception listed was that some people investing for retirement believe they can pick stocks that will produce a better return than mutual funds.

One commenter stated that he/she left mutual funds long ago and picks individual stocks. Someone else responded to that with the following words of wisdom:

"One of the big reasons that I like MF's & suggest them to people is because I have a lack of faith. Over the years I've met an abundance of people that to be honest I was surprised that they were able to dress themselves without help. To suggest to them that they should pick their own stocks to buy in a retirement account would be like giving a 4 year old scissors to run around with. Some people just don't have what it takes to pick stocks."
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Old 09-28-2012, 07:42 PM   #2
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Well, I hate to admit it but Warren Buffet I ain't. When I started investing back in 1987 I split my nut into two. Nut one I picked individual stocks that I'd researched using value line and everything else I could get a hold of. I bought and sold, sliced and diced in this account. Nut two I bought a middle of the road basket of mutual funds - The usual suspects Wellesley, Wellington, Mutual Shares, Selected American Shares etc and left it alone. Fast forward 5 years to 1992. The net return of my individual stock picks, taking into account dividends and transaction costs was ZERO. My mutual fund purchases were up an average of 10% per year. Sold all my stocks. Never been tempted again. As I said Buffet I ain't.
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Old 09-29-2012, 07:46 PM   #3
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Originally Posted by jdmorton View Post
One misconception listed was that some people investing for retirement believe they can pick stocks that will produce a better return than mutual funds.
In a slightly different variation on this problem, I've been able to pick stocks that produce a better return than mutual funds. However it's hard work. I'm no longer trying to invest my way to freedom from employment, I have "enough", and I lack the motivation.

I suppose another issue would be that I might not have been able to keep up the outperformance forever. But I wasn't willing to continue the test that long.

I enjoy lazy investing much more.
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Old 09-29-2012, 10:59 PM   #4
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I had nice returns picking stocks in 2001-2006 or so. Better than the market. But I was only in a small corner of the market, and it took a lot of research time. When I wanted to start foreign investing, I ended up picking an AA and selecting mutual funds to fill it out. Much more diversified, much easier to maintain.You can still go wrong in many ways, but there are fewer ways to screw up than with individual stocks.
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Old 09-30-2012, 07:15 AM   #5
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In a slightly different variation on this problem, I've been able to pick stocks that produce a better return than mutual funds. However it's hard work.
+1
I'm becoming more and more convinced that I've been spending far too much time on this effort, for only a modest gain over what the funds would have offered me.
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Old 09-30-2012, 01:05 PM   #6
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..............
I enjoy lazy investing much more.
Yup.
Another benefit to buying the whole market is, when things go badly you can blame everybody else .
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Old 09-30-2012, 03:15 PM   #7
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I had a series of 9 trades in a row that each of the nine in were at the day's high, as well as the same trades out that each happened at the day's low. I figured with luck like that would be the equivalent to 18 rolls of dice that exactly alternated boxcars and snake eyes. Several of those days had enough volatility that made a mediocre profit trade into a nice profit after broker commissions. That is when I quit brokers. That system didn't work for me.
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Old 10-01-2012, 01:45 PM   #8
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Over the long run, there are an equal number of winners and losers if you are betting on individual stocks. Some pickers are going to beat the market, but some are going to get beat by market returns. I haven't ever compared, but for most of us, the potential gain is probably not worth any extra return and is not worth the effort.
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Old 10-01-2012, 03:45 PM   #9
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With a typical 10K report running 120 pages or more...I don't have the time to read, analyze, and then decided it would be a bad investment...so then start all over. Obviously you don't have to read all 120 pages...but there are probably at least 30 pages that are highly relevant...not to mention running financial ratios on your own.

I have done M&A due diligence analysis on potential takeovers for our MegaCorp...and spend an inordinate amount of time on this type of thing....there's no way I could do this for enough stocks to feel diversified enough.
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Old 10-02-2012, 04:17 AM   #10
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im not smart enough to buy just the right stocks at just the right time in just the right sector in just the right market sentiment.

even if i got all of the above correct i still need to know what all the competitors are doing.

i have enough issues just dealing with my funds and market risk without worrying about individual company risk too.

in fact i dont even like to think about which funds to own.

i have been using a funds selection newletter for 25 years now . up 1200% since i started in 1987 and i dont even have to spend more than 15 seconds a week just checking for updates.
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Old 10-03-2012, 05:08 PM   #11
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In a slightly different variation on this problem, I've been able to pick stocks that produce a better return than mutual funds. However it's hard work. I'm no longer trying to invest my way to freedom from employment, I have "enough", and I lack the motivation.

I suppose another issue would be that I might not have been able to keep up the outperformance forever. But I wasn't willing to continue the test that long.

I enjoy lazy investing much more.
Yup, lazy it is for me, too. It's easier to manage my appetites for stuff than to over-work for an extra tenths of percentage point or two increase in the portfolio - and when I die, I certainly can't take it with me (as far I know for now).
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Old 10-03-2012, 05:30 PM   #12
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MFs and ETFs for me. If watching the market was a hobby/avocation which I enjoyed enough to dedicate lots of time and effort, maybe I'd have a different point of view. Based on my experience and temperament, buying the market with the appropriate asset allocation has worked well.
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Old 10-03-2012, 06:14 PM   #13
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My father has always picked individual stocks even before he retired. Presumably he has more time to devote to it now than when he worked. I am not privy to all his numbers but he has done pretty well according to him. I think for him he primarily invests in the industry sector that he used to work in and thus knows a bit more about the risks and rewards that come with that sector.

Me on the other hand - I don't find that I have the time to devote to single stock research; even in my own sector.
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