Index VS individual stocks

[CabinLifeAt50]

Quote:

Originally Posted by gayl I was actually looking for some underlying commonality in # hrs per day / #% beating 65-35 index split. Trying to compile off line using this thread & 1 other

Just my own personal experience, my etf accounts take far less time which is one of their advantages. I really only have control over which type of index etfs I hold, but once I've made my decision of allocation- S&P, REIT, international, mid, small, etc. I generally just keep on investing. Doesn't take much time after that initial setup to keep it healthy.

For my individual stocks, it takes far more time to research and keep up on what's going on with each company to ensure I want to stay invested with it. I could probably say 95% of my "investing hours per day" is individual stocks, with the rest just checking in on my other accounts. In terms of returns however, my individual stocks are (at least currently) beating the indexes both in total return and yield, but that shifts from year to year as my individual stock portfolio is built out for dividend growth and income rather than simply a total return vs an index. Correlation against something like the S&P just isn't there, which is a nice offset for my overall portfolio.

No one can say for sure how performance will be in the future so build out that split to match your goals, time requirements, risk tolerance etc. If you are very worried about how you are doing vs the index constantly and that is your measure of success for your goals, then just go with the index. If you are looking at other measures for success then that changes things a bit.

[gayl]

Here's my bottom line: I've done single stocks for decades but recently noticed that although I beat benchmark, the difference isn't that large. Is it a hobby or a way to increase overall wealth? Soon I won't be adding to it anymore so I need to reevaluate

[target2019]

Quote:

Originally Posted by gayl I was actually looking for some underlying commonality in # hrs per day / #% beating 65-35 index split. Trying to compile off line using this thread & 1 other

I may spend an hour or two a week on this. The positions are meant to be hold forever, so not much is required. I benchmark like this:

Current Yield 3.82%
Wellington (VWENX)2.63%
Performance Gain YTD 8.77%
Wellington (VWENX)5.15%

[bingybear]

Quote:

Originally Posted by Sunset Once you subtract the expense fee of 0.35% from SDY, the net dividend yield is very close to VTI which has an expense fee of 0.05% As another different choice.

I'm a bit confused why one would just go and subtract the expense fee when performance is net of the fees. In addition, the total return over time is better. That said, SDY is a more narrow index and would not provide the same level of diversification as VTI would.

Don't get me wrong. I know expenses are important and VTI is a good investment.

Fund Name SDY VTI

YTD 11.83% 3.40%
1 Month 1.38% 1.73%
3 Month 10.64% 9.69%
6 Month 10.26% 1.20%
1 Year 10.94% 0.15%
3 Year 12.09% 10.50%
5 Year 12.87% 11.12%
10 Year 8.38% 7.53%
Since Inception 8.43% 6.18%

*note that Inception dates are significantly different.

[Sunset]

Quote:

Originally Posted by bingybear I'm a bit confused why one would just go and subtract the expense fee when performance is net of the fees. In addition, the total return over time is better. That said, SDY is a more narrow index and would not provide the same level of diversification as VTI would. Don't get me wrong. I know expenses are important and VTI is a good investment. Fund Name SDY VTI YTD 11.83% 3.40% 1 Month 1.38% 1.73% 3 Month 10.64% 9.69% 6 Month 10.26% 1.20% 1 Year 10.94% 0.15% 3 Year 12.09% 10.50% 5 Year 12.87% 11.12% 10 Year 8.38% 7.53% Since Inception 8.43% 6.18% *note that Inception dates are significantly different.

My bad.
But here is where it gets odd, your chart shows SDY winning over 10 yrs,
Yet when I go to Yahoo finance and chart them over 10 years, VTI wins by a lot, which is the opposite of your chart

[NW-Bound]

The difference is in whether dividends are included or not. Charts on many Web sites show only the share prices, and not total returns.

I use Morningstar when looking for total returns with dividends reinvested. And it says that over the last 10 years, the annualized return of SDY is 8.46%, and that of VTI is 7.74%.

[bingybear]

Quote:

Originally Posted by Sunset My bad. But here is where it gets odd, your chart shows SDY winning over 10 yrs, Yet when I go to Yahoo finance and chart them over 10 years, VTI wins by a lot, which is the opposite of your chart

My data was using a compare ETF performance from my broker. I looked at the finance.yahoo data. They are not using adjusted data (their term). Thus all distributions were just subtracted. This would be the NAV, not total return.
I assume my brokers is non-biased as they don't have agreements with either ETF company.
I will see if I can pull the adjusted data from yahoo.

[bingybear]

Ok, I downloaded the yahoo finance adjusted data for vti and sdy. I normalized them on 6/1/2006 (divided each entry of each etf by the value on 6/1/2006). Then plotted both.

recent data may have a notable effect.

[ERD50]

Quote:

Originally Posted by bingybear Ok, I downloaded the yahoo finance adjusted data for vti and sdy. I normalized them on 6/1/2006 (divided each entry of each etf by the value on 6/1/2006). Then plotted both. ... recent data may have a notable effect.

EZ at this site:

PerfCharts - StockCharts.com - Free Charts

slide bar for time frame

-ERD50

[Sunset]

Well next time I'm looking for some more index etf, I'll probably broaden out to SDY instead of more VTI.
Just to hedge my choice a bit.

And I'm going to use that easy stockcharts.com site, it's pretty nice.

Plus stick more to Morningstar to be consistent when comparing stocks.

[target2019]

Quote:

Originally Posted by bingybear Ok, I downloaded the yahoo finance adjusted data for vti and sdy. I normalized them on 6/1/2006 (divided each entry of each etf by the value on 6/1/2006). Then plotted both. recent data may have a notable effect.

That spike in favor of SDY at the right is very interesting. I took a quick look at the top 10 companies in SDY:

*HCP, Inc. Common Stock HCP 2.67
*AT&T Inc. T 1.96
Chevron Corporation Common Stoc CVX 1.72
Old Republic International Corp ORI 1.67
People's United Financial, Inc. PBCT 1.61
Cullen/Frost Bankers, Inc. Comm CFR 1.61
*AbbVie Inc. Common Stock ABBV 1.59
National Retail Properties Comm NNN 1.51
*Realty Income Corporation Commo O 1.50
*Caterpillar, Inc. Common Stock CAT 1.45

Marked off the ones held in in-laws brokerage. Definitely a different profile than top 10 in VTI. No APPLE, etc.

[Ed_The_Gypsy]

+1 for Perfcharts!
This is a good one but it will only go back so far.

Sent from my SM-G900V using Early Retirement Forum mobile app

[Running_Man]

Quote:

Originally Posted by Ed_The_Gypsy +1 for Perfcharts! This is a good one but it will only go back so far. Sent from my SM-G900V using Early Retirement Forum mobile app

Yes they only go back as far as the latest start for any ETF or stock you enter. I still would recommend SDOG over SDY for dividend fund replacing S&P500 in the index holdings, though I do think SDY has better algo than DVY. This is good as only real comparisons are possible and psuedo-investments that never had to stand the test of time are eliminated.

[Ed_The_Gypsy]

It appears the they only go back 12 years for VFINX, but it seems to have been started in 1975.


Sent from my SM-G900V using Early Retirement Forum mobile app

[dixonge]

Just dropping this here instead of starting a new thread...

Quote:

In their stock selection model, the authors randomly select a small subset of securities from an index and found that doing so maximizes the chance of outperforming the index—the allure of active equity management—but it also maximizes the chance of underperforming the index, with the chance of underperformance being larger than the chance of outperformance.

Swedroe: Why Index Investing Wins | ETF.com

[gayl]

After 1 month, I'm trying so hard to fight the urge to go back to solo stocks as I've done historically.

Will carve out 10-25% for stock & 5% for options. Guess it's too ingrained in my psyche

[nash031]

Quote:

Originally Posted by gayl After 1 month, I'm trying so hard to fight the urge to go back to solo stocks as I've done historically. Will carve out 10-25% for stock & 5% for options. Guess it's too ingrained in my psyche

Seems reasonable to me. I'm planning on shifting from almost entirely index to 90% index (as the portfolio base) and ~10% value stock investing on my own. I'll let the base index sit alone, and work the 10% number higher if able, continuing to contribute to both portions in the same ratio to continue accumulation. Call it "reaching for the brass ring" without taking too much side risk. If I end up being good at it, call it my "business" or "side hustle" in a few years. If not, then chances are I've had some underperformance in 10% of the portfolio which will not kill us, particularly with time on our side.


Some folks appreciate the challenge of stock picking. I'm not sure I'm one of them, but it scratches a lot of itches that align with my personality, so I'm going to give it a whack. If I hate it or truly suck at it, it's always easy to get that capital back into an index fund!

[Totoro]

What will you do if the side hustle has superior returns?

Wondering myself. Jury is still very much out, but have some mild outperformance in the individual portfolio.

So relatively speaking individual is taking up an increasing share of my NW.

[Mulligan]

Quote:

Originally Posted by Totoro What will you do if the side hustle has superior returns? Wondering myself. Jury is still very much out, but have some mild outperformance in the individual portfolio. So relatively speaking individual is taking up an increasing share of my NW.

Like anything, including what I am doing, it works until it doesnt. Just as a macro view, its hard to imagine indexing being successful over next few years when market is vastly overpriced in a historical sense and industry profits are stagnant. Of course can one in this environment stock pick better than a flattish index market? I dont think I can. But I have mostly been out of market past two years being in mostly investment grade preferred stocks. Compounded return has been up 20% basically just shooting fish in a barrel that a retard to do.
Like anything else, it works until it doesnt. But I am not trying to beat the market. That has just been a meaningless side show for me.
I am just content collecting my average weighted 6.4% dividends. If prices go up, it looks great...If they would ever go down, I reinvest all dividends anyways to buy more, so my annual yield would go up. Either way I am just fine with.


Sent from my iPad using Tapatalk

[MichaelB]

In the FT this morning an article by two analysts from GS asset management titled "EM Equities: beware of the benchmark" (may be subscription). EM equities: beware of the benchmark | beyondbrics

Quote:

Alpha matters a lot in a low return world. That brings us to our highest conviction view on EM equity investing: beware of the benchmark and go active.

This is funny, because GS invented the original and now famous "BRICS" index. Now they list reasons why active management will outperform the passive index. Just for kicks I compared their active fund with Vanguards EM ETF (VWO). Over the past 10 years the ETF has outperformed the GS active fund, without taking into consideration taxes or the 5% sales GS charges. After considering those two factors (M* does a tax cost estimate) my guess is the ETF ourperforms by at least 1% per year. And this is the one area where it is supposedly easiest to outperform.

So much for active management.