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individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 04:09 AM   #1
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individual stocks vs index funds,stocks poor choice

http://www.coffeehouseinvestor.com/PortPonder.htm

Interesting topic for discussion here i think.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 05:45 AM   #2
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Re: individual stocks vs index funds,stocks poor choice

What's your point? I'd say 75% of this forum is solidly in the "mostly ETF/index" camp. I personally own all domestic index plus a very littly BAC (left over from years ago, large capital gain and I like the dividend). I have managed international funds because I don't trust the index. DODFX and VEIEX. Both have good performance and under 1% mgmt fees.

Maybe we can help convert the die-hards. We can read their stories of making a killing on that hot stock.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 06:12 AM   #3
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Re: individual stocks vs index funds,stocks poor choice

Believe me from what i see in disscussions here there are plenty of buyers of individual stocks.
My own feeling is i consider buying individual stocks my speculating money.
Im not smart enough to pick just the right company or companies at just the right time in the right sector* ,and to sell before the disapointing earnings report sends it reeling.Even if i got all of the above correct i still dont know what the competitors got on their drawing board.
I have lots of fun trading individual stocks and even tried a plan like the dogs of the dow method but in twenty years of investing its still my funds that grew my serious money.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 06:29 AM   #4
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Re: individual stocks vs index funds,stocks poor choice

There is nothing wrong with owning some individual stocks if you have the temperment. I own about $35K $37K $35K (I give up), of oil company stock. Boom and bust, but good stocks tend to increase slightly over time just like funds.

If one plays with speculative stock like nanotech, biotech, etc. startups, if you end up with one that is a winner, you win. If not, ..... Unproven high return areas are for play money.

If one buys Ford because it is a bargain, chuckle, I'll put you in my prayers.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 06:32 AM   #5
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Re: individual stocks vs index funds,stocks poor choice

I get the indexing argument.. but 3/4 of my egg is in a taxable account of mostly individual stocks with mostly wicked low cost bases... Need to look at my tax situation end of year to see whether I feel like selling anything.. even low cap gains of 5% seem expensive compared to just hanging on for the ride, but OTOH I should prob. take advantage of today's "LOW LOW RATES!!!!" * and start shifting.

Anyone been stimulated to swap a significant portion of stocks for indexes in a taxable acc't.? Any strategies or other thoughts?
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 06:36 AM   #6
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Re: individual stocks vs index funds,stocks poor choice

Quote:
Originally Posted by Tadpole
If one buys Ford because it is a bargain, chuckle, I'll put you in my prayers.
Then pray for us indexers. It's in our indexes with the current high flyers and the other dogs. Ford may fold (like I believe) or go private for a big premium (Ford family ego may drive that outcome). I gave up trying to outsmart the market years ago. It seems to be working better than I did and it takes much less time.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 06:45 AM   #7
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Re: individual stocks vs index funds,stocks poor choice

Quote:
Originally Posted by ladelfina
I get the indexing argument.. but 3/4 of my egg is in a taxable account of mostly individual stocks with mostly wicked low cost bases... Need to look at my tax situation end of year to see whether I feel like selling anything.. even low cap gains of 5% seem expensive compared to just hanging on for the ride, but OTOH I should prob. take advantage of today's "LOW LOW RATES!!!!" * and start shifting.

Anyone been stimulated to swap a significant portion of stocks for indexes in a taxable acc't.? Any strategies or other thoughts?
You won't get any better capital gains rates than now. More Dems in Congress will raise the war cry to repeal the capital gains treatment in the last "tax cut."

I rolled over a significant amount of capital gains into index funds. I did it over a couple of years as my view of my holdings said it was time. That was a mistake because the reason I needed to switch to the index fund is because I don't always guess right.

Look at the tax situation. The nice thing about index funds is that you don't sell them until you need the money. They are very tax efficient.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 08:21 AM   #8
 
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Re: individual stocks vs index funds,stocks poor choice

Quote:
Originally Posted by ladelfina
I get the indexing argument.. but 3/4 of my egg is in a taxable account of mostly individual stocks with mostly wicked low cost bases... Need to look at my tax situation end of year to see whether I feel like selling anything.. even low cap gains of 5% seem expensive compared to just hanging on for the ride, but OTOH I should prob. take advantage of today's "LOW LOW RATES!!!!" and start shifting.

Anyone been stimulated to swap a significant portion of stocks for indexes in a taxable acc't.? Any strategies or other thoughts?
I owned waaaayyyy to much of a stock that I liked. It was in a taxable account and I did not want to pay that much taxes.

Problem Solved. The stock took a 40% hit and I lost $175K. When I finally sold it, I did not have to pay that much in taxes! After that 'lesson', I have always considered taxes on capital gains a good thing. It means you made some money.

I then proceeded to sell off all my individual stocks when the capital gains rate dropped. I only own the one stock that my DW works for, becuase we can buy it a 15% discount. - And I shed some of that every couple of years.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 08:36 AM   #9
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Re: individual stocks vs index funds,stocks poor choice

i'm just not smart enough to separate the sheep dip from the huckleberries ...
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 08:53 AM   #10
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Re: individual stocks vs index funds,stocks poor choice

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What's your point?* I'd say 75% of this forum is solidly in the "mostly ETF/index" camp.
The article is directed to the average investor......which I think there isnt a lot of here... Pretty simplistic argument against individual stocks.....I cant remember a recent discussion on individual stocks that wasnt about value.....The article would be good for folks that put all of their money on tech stocks in the late 90s.....or buying Pfizer, coke, etc. at high valuations at the same time....

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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 08:56 AM   #11
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Re: individual stocks vs index funds,stocks poor choice

Buy both - the balanced index for retirement and:

individual stocks for the male hormones - a form of medical treatment for an incurable condition.

heh heh heh heh heh - BTW Monday night football is coming tomorrow.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 09:57 AM   #12
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Re: individual stocks vs index funds,stocks poor choice

To me the strongest argument for investing in individual stocks is the education it provides as to the mechanisms of the markets and the drivers of profits in various industries. I hold about 20% of my total portfolio in stocks of 22 companies. They fall into 8 different industries. I DCA'd into them over a 10 year period. I found that I paid alot of attention to the dynamics of those industries which I would not have done if I was invested only in index funds (where the bulk of my remaining investments are). This has given me insight into market dynamics and has allowed me to ignore alot of fluctuations that might otherwise have caused me to panic and sell funds at just the wrong times. I have also done a bit of sector rotation among these stocks. Again that motivated me to educate myself on the likely impacts of such things as interest rates, competitive advantages, spin offs, etc. Unless you are going to buy and hold and hold and hold... index funds you will benefit from the education you receive by trading modestly in individual stocks even if your returns are equally modest.

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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 10:23 AM   #13
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Re: individual stocks vs index funds,stocks poor choice

Quote:
Originally Posted by Cut-Throat
... I only own the one stock that my DW works for, becuase we can buy it a 15% discount. - And I shed some of that every couple of years.
I am pretty in the same boat, holding only a single stock through employee stock purchase plan (ESPP). The old plan (before the merger) was better since you can sell it almost immediately. Now, you have to hold it for 3 months before selling and another 21 months to avoid paying tax for the 15% discount.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 11:11 AM   #14
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Re: individual stocks vs index funds,stocks poor choice

Quote:
Originally Posted by ladelfina
Anyone been stimulated to swap a significant portion of stocks for indexes in a taxable acc't.? Any strategies or other thoughts?
Only as the stock hits a sell stop or we decide what to liquidate for living expenses. I'm also wondering if we'll ever sell Berkshire Hathaway or just hold it for gifting/charitable donations.

I'm holding one big loser-- Nortel-- as we wait for tax-loss harvesting or a deus ex machina. I'm pretty sure now that harvesting will happen first.

As far as other strategies, I think the 2008 reduction in cap gains taxes is worth planning for. The political parties will be pumping up the election-year economy and it may be a good time to harvest profits in favor of finding an unloved sector or two... perhaps REITs or oil!

Beating the indexes with individual stocks can be done, but it's a lot of work-- work that I'm losing interest in doing.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 11:19 AM   #15
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Re: individual stocks vs index funds,stocks poor choice

I hold almost all index/ETFs with only "managed" funds being Vanguard Metals, and Pimco foreign and developing bond funds.

Now for my "fun-money" I hold only 1 single stock currently; WisdomTree Investments (WSDT.pk) which we have discussed here before. It is a wild ride, and my stop "loss"(gain actually) have stopped me out twice(at a profit), but I have faith in the biz; good board (Incl. Siegel), interesting (fashionable?) products being dividend indexes and in addition an international small cap value/dividend ETF (DLS).

Above said; for me ETFs/index is the main driver, I see little advantage in taking on specific company risk with my base portfolio.

Cheers!
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 11:28 AM   #16
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Re: individual stocks vs index funds,stocks poor choice

Quote:
Originally Posted by 2B
What's your point? I'd say 75% of this forum is solidly in the "mostly ETF/index" camp. I personally own all domestic index plus a very littly BAC (left over from years ago, large capital gain and I like the dividend). I have managed international funds because I don't trust the index. DODFX and VEIEX. Both have good performance and under 1% mgmt fees.
Your VEIEX is an index fund. It tracks the MSCI Emerging Markets Index. It used to track the MSCI Select Emerging Markets Index (a custom index created for Vanguard), but they switched in the last few weeks.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 12:04 PM   #17
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Re: individual stocks vs index funds,stocks poor choice

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To me the strongest argument for investing in individual stocks is the education it provides
... what i learned from that education is that:
Quote:
i'm just not smart enough to separate the sheep dip from the huckleberries
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 12:07 PM   #18
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Re: individual stocks vs index funds,stocks poor choice

Quote:
Originally Posted by ben
Above said; for me ETFs/index is the main driver, I see little advantage in taking on specific company risk with my base portfolio.
Bernstein & Swedroe have both observed that the single-stock risk premium is not sufficiently rewarded.*

They also opine that when the extra effort is taken into account, investors in individual stocks would probably enjoy greater rewards with their lives, families, & friends. If, by that point, they still have any.

But there will always be the exceptions to the rule who will profit handsomely by it.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 12:18 PM   #19
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Re: individual stocks vs index funds,stocks poor choice

I have both stocks (Ameritrade) and Mutual Funds (D&C).
My Ameritrade account consists of mostly dividend paying stocks.
I rarely spend my dividends - usually use them to buy more stocks or draw out
and buy CDs.
But, what I don't like about mutual funds is the accounting hassle regarding
dividends and capital gains, which would be nightmarish if I began drawing from the D&C funds. I guess I just don't understand how to use my funds.
They just seem to make income tax time too tough as I have to pay taxes on money that I haven't withdrawn.
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Re: individual stocks vs index funds,stocks poor choice
Old 09-10-2006, 12:19 PM   #20
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Re: individual stocks vs index funds,stocks poor choice

If you are retired and living off your portfolio as thae main/only source of funds, I think that having more than maybe a third of your equity allocation in individual stocks is foolish (unless you have WAY more capital than you need). *OTOH, if you are in the accumulation stage, have a large risk appetite, and are willing to do the significant amount of analysis required, individual stocks and bonds can be a very good thing. *

I personally am way ahead of the indexes as a result, although a fair amount of that is simply that when I started investing in 1999 it was very clear even to newbie me that the overall market indexes were not even vaguely attractive. *Since that was the case, I had to start out with individual stocks. *Since lots of good, old stalwarts were out of favor, it was pretty easy to pick up good stuff on the cheap.
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