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Index VS individual stocks
Old 06-08-2016, 07:25 PM   #1
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Index VS individual stocks

Input wanted :
Investments = 567k
  • SCHA 10%
  • SCHB / SCHD / SPY 60%
  • CXA, PWZ, USATX 20%
  • Individual stocks 5%
  • Cash 5%
Emergency fund = 5k
Private note = 10k
Debt = 1601
Net pension = 2300m
Dividend average = 700m
Will take SSA in 5 yrs

After many MANY years of individual stocks, I'm beginning to think index ETFs do as well.

WDYT?
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Old 06-08-2016, 07:27 PM   #2
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Sure. One can buy low/sell high ETFs (or rebalance as they talk in certain circle), just as one does with stocks. More diversification, less risk.

No problem.
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Old 06-08-2016, 09:04 PM   #3
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An index will do better. Most FA can't beat an index, likely neither can you.

And index may have no trading fees. You do not have to worry about diversification of the individual stocks. No income taxes just because you bought more LMT and sold T.
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Old 06-08-2016, 11:15 PM   #4
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That is my plan, to shift away from individual stocks to etf's over time.
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Old 06-09-2016, 07:11 AM   #5
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Sooner or later this is likely where we will all end up. Either we don't want to spend the time anymore or we start slowing down mentally.
I use Schwab as one of my brokerages, but I don't stick solely to Schwab transaction free ETFs. I'm not sure if you are trying to be heavy dividend stocks or not, but if you are you might consider SDY (which I hold at Schwab). Transaction fees don't have to be significant if you buy large enough transactions. Obviously this kind of thinking opens up many more choices which may be part of what you are wanting to get away from.
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Old 06-09-2016, 07:19 AM   #6
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I've also moved from individual stocks to index ETF's. I do own one stock for trading purposes. Just for fun.
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Old 06-09-2016, 07:58 AM   #7
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It was after an eye opening moment on Schwab's portfolio analysis tool that I started moving from 90% individual stocks picked thru one of my 2 screens to 90% EFTs. I just couldn't consistently beat benchmark. Hate to admit the march to mediocrity but if I'm in it for the gain and not the game, then I gotta do what I've gotta do
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Old 06-09-2016, 08:10 AM   #8
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Our portfolio is predominantly ETFs and has been for awhile.

I have found that the only way we can beat benchmarks is to buy more risk after equities have dropped. That is, increase weight of equities above the benchmark weight temporarily. Is that cheating since we are not following the benchmark at that overweight moment? Sure it is, but it works.

And then, after getting ahead of the benchmarks, simply restore equity allocation back to the benchmark weights. That way, the portfolio continues to track the benchmarks, but always slightly ahead because of the gains from temporarily overweighting stocks previously.

One might think that if temporary overweighting works, then why not some occasional temporary underweighting, too. I haven't figured out a really good way to predict future drops in the market consistently yet, so that's not a strategy I can use nor recommend.
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Old 06-09-2016, 09:34 AM   #9
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Looking back, 90% of my gains come from buying when the market is low, and not so much from stock picking. Hence, my earlier comment about one making money with ETF the same as with individual stocks.

Old habits die hard, however. At one point, I trimmed down my portfolio, but slowly some positions crept back in. Oil is down, so refiners should do well. In came a couple of refinery stocks. Industrial metal is down bad, so let me pick up some miners. Soon, I am back to almost where I was.

I should divest these individual stocks, and get more sector ETFs instead. I don't think I can ever go 100% in just broader ETFs, such as small-cap value, or large cap, etc... I like to see how the various sectors move with respect to each other, and the temptation to buy-low/sell-high is just too much to resist.
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Old 06-10-2016, 12:03 AM   #10
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I have really never found picking individual stocks especially difficult. I will always do that for at least 25% of my portfolio. The low risk on ruining my portfolio and lack of having to answer to anyone as to why I am purchasing a given stock helps in my returns I think. But all you index buyers keep going it has made picking stocks much easier. Most of the competition I am in against is either very short term focused or buy and hold forever focused. I am more in the intermediate term using relative valuation measures and that has worked for me for a long time. I find it interesting fun and rewarding, and expanding out in the last year using many of the same ideas for an asset class I always avoided, very much wrongly I might add, preferred stock, I intend to continue on this path as long as my brain is able.
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Old 06-10-2016, 12:04 AM   #11
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Originally Posted by bingybear View Post
.
I use Schwab as one of my brokerages, but I don't stick solely to Schwab transaction free ETFs. I'm not sure if you are trying to be heavy dividend stocks or not, but if you are you might consider SDY (which I hold at Schwab). Transaction fees don't have to be significant if you buy large enough transactions. Obviously this kind of thinking opens up many more choices which may be part of what you are wanting to get away from.
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.
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Old 06-10-2016, 12:06 AM   #12
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I'm not sure if you are trying to be heavy dividend stocks or not
Not really, it's more a growth / value allocation @ 0.05% or less
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Originally Posted by Running_Man View Post
I have really never found picking individual stocks especially difficult. I will always do that for at least 25% of my portfolio.
How much so you beat benchmark by on a consistent year after year basis? I run 2 screens with 10 criteria (1 small cap, 1 PEG < 1) which typically narrow it down to only a handful of companies then review technical analysis --
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Old 06-10-2016, 02:25 PM   #13
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Not really, it's more a growth / value allocation @ 0.05% or lessHow much so you beat benchmark by on a consistent year after year basis? I run 2 screens with 10 criteria (1 small cap, 1 PEG < 1) which typically narrow it down to only a handful of companies then review technical analysis --
I do not waste time trying to compare my performance against a wide array of ETF and portfolio design. It doesn’t mean anything and I don’t need to report that to anyone so why waste the time on academic nonsense. I spend my time researching stocks and only compare against the S&P500 or the VTI a little more lately because I am now retired and can track the details I want in Excel much easier than when I was working and constantly adding to the portfolio and had even less time.

The only time I remember really lagging the indexes was in the late 90’s when everyone was jumping into the internet stocks and they soared and I owned none of those. But from 1990 to 2000 it really didn’t matter that much what you were invested in you were going to do good in any asset class. It is only from January 2000 that portfolio failures are really becoming important.

From January 2007 to March 2009 my total stock gains were slightly positive on my 25% of the portfolio capital allocated for individual stocks, though for most of that period I was 100% cash and totally out of stocks this was versus -41.4% for the S&P 500. Now that I am retired I don’t think I could again afford the risk of being totally out of stocks in case of an inflationary burst in response to economic issues so I don’t think I will ever do that again.

In April of 2007 I read the 4 pillars of investing by Bernstein and thought his points were ridiculous as I said in this post: Four Pillars of Investing - Efficient Market Theory!?!?
In the years immediately following the publishing of that book and the KEY point Bernstein that one cannot see market declines coming and should always stay invested, he changed his mind and advocates first maintain 20 years of safely invested cash like positions so that you can endure major bear market. When I see advocates of index investing this is what is so annoying, the benchmarks or investment to be placed in indexes is constantly revised, then researched back to 1926 to show how successful the new strategy would be, and this is then used to show how efficient and good the market can be used to create and maintain wealth.

I have no doubt if there is another major bear market that brings us back down 50% or more (not a current prediction merely a possibility), that new theories and investment portfolio design will be offered based on the market segments which now have the best long term market performance. If this market decline were to happen in the near future the devastation to pension portfolios will be so great there will be large declines in pension income across the world. This potential pressure is why I continue to believe there will be no significant increase in interest rates in the coming 1-3 years.
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Old 06-10-2016, 07:57 PM   #14
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I do not waste time trying to compare my performance against a wide array of ETF and portfolio design.

.... I spend my time researching stocks and only compare against the S&P500 or the VTI a little more lately because I am now retired and can track the details I want in Excel much easier than when I was working ...

The only time I remember really lagging the indexes was in the late 90ís ...
You don't compare, but now you compare, you didn't compare in the past because you didn't have time, but you know you lagged in the 90's?

Interesting.


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I have no doubt if there is another major bear market that brings us back down 50% or more (not a current prediction merely a possibility), ...
I wonder if there is anyone who has studied the markets that doesn't consider that a 'possibility'?

A friend of mine goes on and on about his options strategy, spends a LOT of time on it. Refuses to compare his results with S&P 500. I don't understand.

-ERD50
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Old 06-11-2016, 01:32 AM   #15
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You don't compare, but now you compare, you didn't compare in the past because you didn't have time, but you know you lagged in the 90's?

Interesting.



I wonder if there is anyone who has studied the markets that doesn't consider that a 'possibility'?

A friend of mine goes on and on about his options strategy, spends a LOT of time on it. Refuses to compare his results with S&P 500. I don't understand.

-ERD50
I did not compare to the S&P500 because that was meaningless to me. I already know a great deal of people feel like indexing is the way to go and I agree with that if that is how you invest but it is not how I do. I review my stocks, listen to conference calls, review why I bought a stock and why I sold it, follow future progress to identify mistakes and see how my stocks performed versus my expectations to determine if I am thinking about the market correctly. If by now you have not realized my picks crush the S&P500 you are just not paying attention. Yet I am quite conservative and only utilze 25% of my portfolio, so you can see while I am confident I am not willing to put my funds to the ultimate test but it allows me to invest in my decisions without any fear and that I think is what I need to be successful when I have gone through the analytics of a situation. Posting here clears my mind and thought process further, especially with all the indexers challenging the very notion of individual investing.

When I analyzed the oil industry in 2014 on the I like oil thread started because of the belief the oil industry had bottomed and the oil stocks were now cheap (yowzers people reccomended stocks there that fell 80-90%) and foresaw many problems in that area and sold all my oil and energy stocks I did not stop and try to compare what that would mean for the S&P500. I did offer that I thought at 70-75 Exxon would be a decent price it fell to a low of 66, I offered that at 85 Chevron would be a good price it had a closing low of 75 though it flash crashed to 66, but from a financial standpoint only Exxon Mobil met my critera. I put up an analysis of BHP and tried to stop people from investing in what I thought was a coming train wreck even though it had fallen from a high of 100 to 46 on that date it eventually dropped another 60 percent to 18.46 and with the recent oil recovery still sits down over 40percent at 26. fellI like Oil So yes I think I can analyze individual stocks quite well, and mostly because I donít have to report to anyone but myself and can think for myself in my own time frame and donít have a single index I am competing against, other than the inflation rate.

I was surprised that my CEF DNP was a lot more exposed to the oil industry as it fell far further than I expected and realized I made a mistake in not selling DNP. How DNP did in comparison to the S&P500 I couldnít even say though I think it was worse though now it has recovered, and with the 7% annual distribution who knows it might be doing better than the S&P500 I really donít know.

I spend time trying to see if I can gleam enough of a look at Chinaís economy and determine if I still want to hold the 1000 shares of VFC I hold with a basis of $20 from 2010 or if I should let a strong management team try to work out those problems. AMGN is a stock and company I really like with really strong management and a great dividend policy but it is really affected by the BIOTECH ETFís and potential generic competition and legal changes should certain politcal factions gain control.

When I analyzed Kinder Morgan I sold the stock before the takeover because I though it was fully valued, many thought the new structure would be great, I didnít like it much and there was risk in holding on, but I continued to follow the company because I knew it and then I posted the thread about it being a potential disaster, when the disaster hit I knew the financials well enough to know the new Preferred was a steal when it had fallen to 32 from 50 when the preferred dividend was totally safe for the next 4 years, a quick 38% profit was nice in that preferred when the markets realized the same thing in 3 weeks. this was similar to what happened when I had sold my Cullen Frost stock but listened to the CEO talk about how the hedged oil production for the next year would save his loans, instantly it hit me that everyone just assumed oil would not stay down, certainly Pickens thought so but because I answer to no one I could easily disagree with him and find his ideas foolish and mere hope.

I analyzed CAT when someone had a question, gave an opinion on a price to target to buy - 60 low was 57 after that and Sunset was going to sell because of loss and I cautioned not to, at least for me only the outlook of the company should matter not taxes. Turns out that was the low in the stock and now it is at 57 paying a 5% dividend on the original investment and up 32% in 5 months.
Any One Have Any Thoughts on CAT How would that have done compared to the S&P500, doesnít matter to me is the dividend secure and can I count on it, I thought most likely it would though CAT doesnít meet my investment criteria because of too much fluctuations in earnings. Once you allow yourself to worry about how you are doing against an index you will change the manner in which you invest. But you can count on this, my individual stock performance has crushed the S&P500 in the time I have been on this forum. It is not even close. From 2010 to 2013 I was working 70 hours per week on corporate mergers, pension dissolutions and ERP implementations so with the additions to the portfolios and the various accounts I donít have exact figures nor do I really care what they were, I track now because I work zero hours and have set up a spreadsheet that breaks my components out for me quite nicely.

You can review my posts here I make many on individual stocks and put up most of my ideas, a couple of wrong ones were PMT and SO which did not work out as I thought and realize I should never of bought because it did not have the earnings consistency I usually require and a closed end fund RVT I bought at a 14% discount to market but should just buy my own stocks.

We are at a point in the investing world that is incomparable to any point in history yet academics are finding comfort in their indexes and results back to 1926 when 15 trillion of government debt has a negative yield. At some point in the future academics will be studying this period and wondering what in the hell were they thinking. But when you have Banks giving mortgages out at negative rates (paying people to borrow) as one has done in Spain, you have to wonder if banks really will be around in another 10 years. If only I could get 15 trillion dollars borrow at -0.5% and then pay back the debt in a year while earning nothing on the loan but then being able to save 75 billion for myself in just a year I will know I have made it. And yet it is possible that 75 billion would be an underperformance to the S&P500 based on the 15 trillion of capital, but would it really make that a poor choice of investment?
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Index VS individual stocks
Old 06-11-2016, 08:20 AM   #16
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Index VS individual stocks

RM, Big fan of your posts. Always enjoy your opining; very informative and I always like your thought processes that go into your investments. And though I personally agree with most of your posts, that isn't even relevant. I mean, seriously, how many posts can anyone read and still find any entertainment value in reading about "indexing" or how great Wellesley is.
And no, I am not disparaging those investment styles in any way...It is just boring reading about that a million times with the repeated incite I can give in 2 sentences also. You are one of the few people who "puts it out there" not only in what you do, but more importantly why you do it. The "why" part is rarely fleshed out from most posts, and you are willing to put the effort into that difficult part.


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Old 06-11-2016, 10:09 AM   #17
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Originally Posted by LOL! View Post
Our portfolio is predominantly ETFs and has been for awhile.

I have found that the only way we can beat benchmarks is to buy more risk after equities have dropped. That is, increase weight of equities above the benchmark weight temporarily. Is that cheating since we are not following the benchmark at that overweight moment? Sure it is, but it works.

I remember some advice from Andrew Tobias years ago for investors: Dollar cost average into a fund, the same amount every month, but, if the market takes a big drop, buy a little more that month.

It sounds like you did the same thing with a bit more math behind it.
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Old 06-11-2016, 02:42 PM   #18
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RM, Big fan of your posts. Always enjoy your opining; very informative and I always like your thought processes that go into your investments. And though I personally agree with most of your posts, that isn't even relevant. I mean, seriously, how many posts can anyone read and still find any entertainment value in reading about "indexing" or how great Wellesley is.
And no, I am not disparaging those investment styles in any way...It is just boring reading about that a million times with the repeated incite I can give in 2 sentences also. You are one of the few people who "puts it out there" not only in what you do, but more importantly why you do it. The "why" part is rarely fleshed out from most posts, and you are willing to put the effort into that difficult part.
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RM I too really enjoy your posts as you explain the rational behind the action.

As for my CAT shares, since you mentioned them, I didn't sell.
Kept collecting the high dividend.
Last week when they were at about $72, I sold a covered call at $77.50 strike price for 6 calls (making ~ $600). The stock popped up with the market right after that, but has since dropped down a bit, so maybe they will be taken away but have to wait until August to know, currently they won't.

I did the covered call as it was a way to either sell at a far better price than current price, or at least make 1.5% on top of the dividends of 4%.

I also have a bunch in various broad ETF's that I consider my core investments as I'd never bet the farm, but still want to have fun and try to take advantage of the market in-efficiency.
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Old 06-11-2016, 11:55 PM   #19
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To the original post: It really just depends on what you are trying to achieve here. Not always as clear cut as index vs individual stocks. Are you focusing on Total growth, income, dividend growth, safety, etc.

As you can tell folks tend to feel strongly about their way of investing but you need to find what works for you and what you are trying to achieve. If there were only one successful way to invest, everyone would be in it. I personally have index ETFs in some accounts being used to meet particular goals. I also have a large number of individual stocks in other accounts, again for different reasons and goals that work for me. I do like how one can really customize dividend yield and asset allocation with individual stocks (usually fairly easy to beat dividend yield for income and income growth vs indexes as well as building out a monthly stream) however I like the ease of building a solid, low maintenance portfolio using ETFs for some of my accounts. Different goals, different uses, different maintenance etc.

Are you only focused on total return? Care about time to maintain? Do you really like investing or just want to fire and forget? Lots of details to analyze to get to your specific answer.
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Old 06-12-2016, 12:08 AM   #20
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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
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