Why some people buy individual stocks when most feel impossible to do

[Running_Man]

Attached is a one hour speech by Peter Thiel, it is a philosophical discussion on the times of the business world, I think there are a lot of good ideas on portfolio approach and finance in general that I found interesting, if you are an individual stock investor you may like this as well.

Peter Thiel: You Are Not a Lottery Ticket - SXSW Interactive 2013 - YouTube

 

[Rick_Head]

I hate to remind you of this, but:
1) I'm retired and don't waste time listening to talking heads.
2) It's a freak'n hour. I might die during it.
3) If it's worth listening to, you could tell us why.
4) Most important: What would Jack Bogle say?

 

[Lancelot]

I hate to remind you of this, but:
1) I'm retired and don't waste time listening to talking heads.
2) It's a freak'n hour. I might die during it.
3) If it's worth listening to, you could tell us why.
4) Most important: What would Jack Bogle say?

No good deed goes unpunished.

Thanks for the video RM, +1

 

[RISP]

Why some people buy individual stocks when most feel impossible to do

I can assure you that it is indeed possible to buy individual stocks. I've done it myself on several occasions.

 

[target2019]

Attached is a one hour speech by Peter Thiel, it is a philosophical discussion on the times of the business world, I think there are a lot of good ideas on portfolio approach and finance in general that I found interesting, if you are an individual stock investor you may like this as well.

I'm not personally offended by ideas, but it seems you stepped on the fourth rail or something like that.

Here's an article/interview if anyone is interested in the Peter Thiel.
Peter Thiel: ‘We attribute too much to luck. Luck is an atheistic word for God’ | Technology | The Guardian

He is a successful and controversial figure from the world of business.

Now, back to the discussion...

If there were a transcript, I might have time to skim through it.

 

[jerome len]

Sometimes I buy individual stocks......most of the time I don't. Why? I'm just not as smart nor do I have the technology or time to compete with the pro's. So, I'm a Bogle fan!

The stocks I buy are on a downturn, I know the company, and I feel I can hold them for a long time. .....but, only less than 5% of my portfolio. I had a good friend who's wife became a day trader......she lost money......then he gained a friend who ran a small hedge fund.....he lost BIG money......10 years ago we had about the same net worth.....today I"m over double his/her net worth. I had to be "smart" to make my money, now that I'm older I want to enjoy my money......not lose it. And, so far I've done OK.....and that's all I want to do in the future.

 

[SJ1_]

I hate to remind you of this, but:
1) I'm retired and don't waste time listening to talking heads.
2) It's a freak'n hour. I might die during it.
3) If it's worth listening to, you could tell us why.
4) Most important: What would Jack Bogle say?

+1 (on 1 thru 4)

 

[sengsational]

I might buy individual stocks under the magic formula/little book thing, but that would be for entertainment.

 

[GrayHare]

Main reason for me is control of cap gain taxation. I agree such info transmitted via video is a waste of both net and brain bandwidth.

 

[haha]

Slays me how important some people think they are. RM posted a video, we can watch it or not. If someone is too important with too many pressing demands on his time, he doesn't need to watch it. But for those of us who maintain open minds, members who post videos and other information are quite valuable and I and many others appreciate it. Peter Thiel has likely accomplished more in business and finance than all the members who have ever posted here, or who ever will in the future. I think I will find the time to listen.

Ha

 

[Andre1969]

Hell, I sat through that whole "Broken Eggs" movie, and enjoyed it. So who knows? I might like this too. I have an online brokerage with Scottrade, and overall I think I've done better picking individual stocks than I have with mutual funds. So either I'm good at picking stocks, suck at picking mutual funds, or the truth may lie somewhere in the middle?

 

[NW-Bound]

Never knew who Paul Thiel was, until I looked him up. I watched the video. It was not about stock buying per se. I think the presentation was made at a SXSW session for start-ups and entrepreneurs.

It was a bit long, but as I watched it (listened to the audio mostly), I found that he made some interesting points about different nations being at different stages of evolution or demographics, their mentality, and how their capital is deployed accordingly.

One thing we all know about start-ups and risk-taking entrepreneurs: without them, we would not have the technology today that even dummies can enjoy. We would be driving horse carts, and communicating via smoke signals. Investing in tech stocks is high-risk/high-reward, and certainly not for everyone.

 

[Rosie]

Slays me how important some people think they are. RM posted a video, we can watch it or not. If someone is too important with too many pressing demands on his time, he doesn't need to watch it.

+1

But yet, some important people are apparently not too busy to post a complaint about how busy they are.

 

[youbet]

Slays me how important some people think they are. RM posted a video, we can watch it or not. If someone is too important with too many pressing demands on his time, he doesn't need to watch it. But for those of us who maintain open minds, members who post videos and other information are quite valuable and I and many others appreciate it. Peter Thiel has likely accomplished more in business and finance than all the members who have ever posted here, or who ever will in the future.

Ha

+1

What I don't have time for is reading posts where an individual is going on and one about how busy he is and how he doesn't have the time or inclination to read an article, watch a video, etc.

If ya don't wanna do it, don't do it! No need to yap and yap about it.

To OP: A brief synopsis would have been nice though.......

 

[jetpack]

It's funny, I was talking to a freshly hired Vanguard Flagship representative in a bar once. Flagship reps are for those with $1M+ in funds. She was commenting how she doesn't understand why someone with that much money would invest in mutual funds, instead, they should be investing in individual stocks. She was actually quite clueless on other financial matters I discussed with her.

 

[ScaredtoQuit]

It's funny, I was talking to a freshly hired Vanguard Flagship representative in a bar once. Flagship reps are for those with $1M+ in funds. She was commenting how she doesn't understand why someone with that much money would invest in mutual funds, instead, they should be investing in individual stocks. She was actually quite clueless on other financial matters I discussed with her.

Why is everyone so negative on following something other than the Bogle approach? Try investing in individual stocks… you might like it!! I’ve been following Josh Peters Dividend Investor newsletter recommendations for about 7 years now and have been achieving excellent results. By concentrating on higher than average dividend yields and companies that increase their dividends each year, in the long run you are quite likely to beat the market averages. Plus, if you have a low cost broker, your fees are lower than even the most inexpensive investment companies!!

You can criticize my approach all you like, but until you actually try it, you’ll never know what you’re missing!!

 

[RISP]

I’ve been following Josh Peters Dividend Investor newsletter recommendations for about 7 years now and have been achieving excellent results.

It would have been hard to achieve anything else. Those were, overall, excellent years for stocks. The large drop in 2008 meant you were buying at a discount early on. Also, small sample size.

By concentrating on higher than average dividend yields and companies that increase their dividends each year, in the long run you are quite likely to beat the market averages.

I doubt it, and so does science. It doesn't matter whether a company pays out its profits to shareholders, or invests them to grow the value of the business. Only the tax treatment might be different. This is all really well researched - you could look it up!

Not meaning to rain on your parade, though. Personally, I think investing in individual stocks rather then index funds is fine. That is, if you have a large enough portfolio to keep transaction costs small and do a good job to cover all segments of the market, domestic as well as international. Global exposure to all kinds of different businesses requires dozens of stocks, after all. And focusing too much on dividend payers will likely lead to a portfolio heavy with large value stocks.

Lastly, what many folks on this board correctly criticize is not so much holding individual stocks, but the believe that stock picking and market timing will result in outperformance. Going with low cost index funds is just much simpler, and just as likely to succeed. That being said, I, as many others, do buy the occasional stock in my "fun money account". It's simply much more interesting, and it makes me feel good if I'm right. But for serious investing, I trust Mr. Market more than my own investment skills.

 

[Running_Man]

I doubt it, and so does science. It doesn't matter whether a company pays out its profits to shareholders, or invests them to grow the value of the business. Only the tax treatment might be different. This is all really well researched - you could look it up!

Scoop Up Dividends-Kiplinger

The only research I have ever known to be done on results on Dividend Stocks based on dividend yields and the returns obtained thereof is by Jeremy Siegel and he found that the highest paying 100 dividend stocks in the S&P500 rebalanced every year to select the next best 100 highest yielding stocks returned 12.5% the S&P 500 returned 10 percent and the 100 lowest paying stocks returned 8.8%. This is over a 42 year period. This is a big reason I advocate SDOG instead of the S&P500 index fund despite the higher expense ratio.

 

[misanman]

Doubt that anyone cares, but I buy individual stocks almost exclusively.

 

[RISP]

Scoop Up Dividends-Kiplinger

The only research I have ever known to be done on results on Dividend Stocks based on dividend yields and the returns obtained thereof is by Jeremy Siegel and he found that the highest paying 100 dividend stocks in the S&P500 rebalanced every year to select the next best 100 highest yielding stocks returned 12.5% the S&P 500 returned 10 percent and the 100 lowest paying stocks returned 8.8%. This is over a 42 year period. This is a big reason I advocate SDOG instead of the S&P500 index fund despite the higher expense ratio.

Read the article. It leaves open a couple of questions about the methodology:
- Did Siegel adjust for survivorship bias?
- Are the 2.5% extra return related to higher risk?
- How did he pick the "highest paying 100 dividend stocks" - ex ante or ex post? If he selected them after the fact, that would be pointless.

Will follow up on this once I've had more time to read up on the topic. I find this quite interesting.

Just as food for thought: If it were true that dividend payers consistently outperform the market without additional risk, wouldn't the market have priced it in long ago, leading to the effect vanishing?

 

[NW-Bound]

Just as food for thought: If it were true that dividend payers consistently outperform the market without additional risk, wouldn't the market have priced it in long ago, leading to the effect vanishing?

I will let RM answer the other questions, but I cannot help answering the above question. It is a very common, oft-repeated, and well-worn argument of the Efficient Market Hypothesis proponents.

They base it on the principle that the players are all rational, hence the market is efficient. But I can apply that to question anything else. If the stock market is that good, why aren't all people successful investors and able to retire early? If exercise and staying slim gives health and longevity, why are there so many obese people?

If dividend stocks outperform - I take a neutral stance here - but yet not priced out, it could be because of many reasons. One of which is may be that these stocks are boring, and not sexy like Google, Apple, etc..., and get thrown in the bargain bins.

Of all the arguments used by EMH proponents, the above is what I find the weakest. It in effect says that the market is efficient because it simply cannot be inefficient. Instead of looking at the actual data, it will dismiss a premise because it is just impossible. Why impossible? Because it contradicts their theory!

 

[RISP]

Attached is a one hour speech by Peter Thiel.

Actually watched the first 90 seconds and had to stop. This guy is a terrible speaker. I bet he could present his material in 20 minutes if he wouldn't repeat every other sentence and kept saying "Um...uh...kinda....".

 

[NW-Bound]

Speaking of something being impossible, even Burton Malkiel, the author of the "A Random Walk down Wall St", told of this joke.

Two economists were taking a walk down the street while discussing an interesting topic, when they spotted a $20 bill on the sidewalk. One bent down, ready to pick it up when his friend stopped him.

The friend said "Don't bother. It's a mirage. If that $20 bill were real, somebody else would have picked it up long ago".

 

[tulak]

Slays me how important some people think they are. RM posted a video, we can watch it or not. If someone is too important with too many pressing demands on his time, he doesn't need to watch it. But for those of us who maintain open minds, members who post videos and other information are quite valuable and I and many others appreciate it. Peter Thiel has likely accomplished more in business and finance than all the members who have ever posted here, or who ever will in the future. I think I will find the time to listen.

Ha

+1

I appreciate the post. Funny that some find the time to add pointless comments. It seems like a better use of time would be to move on...

RM, please continue to post. Some, maybe even many, find it useful. Speaking for myself, this is one of the reasons I read this forum.

 

[clifp]

It would have been hard to achieve anything else. Those were, overall, excellent years for stocks. The large drop in 2008 meant you were buying at a discount early on. Also, small sample size.


I doubt it, and so does science. It doesn't matter whether a company pays out its profits to shareholders, or invests them to grow the value of the business. Only the tax treatment might be different. This is all really well researched - you could look it up!

Not meaning to rain on your parade, though. Personally, I think investing in individual stocks rather then index funds is fine. That is, if you have a large enough portfolio to keep transaction costs small and do a good job to cover all segments of the market, domestic as well as international. Global exposure to all kinds of different businesses requires dozens of stocks, after all. And focusing too much on dividend payers will likely lead to a portfolio heavy with large value stocks.

Lastly, what many folks on this board correctly criticize is not so much holding individual stocks, but the believe that stock picking and market timing will result in outperformance. Going with low cost index funds is just much simpler, and just as likely to succeed. That being said, I, as many others, do buy the occasional stock in my "fun money account". It's simply much more interesting, and it makes me feel good if I'm right. But for serious investing, I trust Mr. Market more than my own investment skills.

I have been subscribe to the newsletter pretty much beginning. Since 2005, it has beaten the S&P by 30%, which sounds like a lot but is only 1.5% annual more than S&P500. My portfolio returns are almost exactly the same over the last 10 years. (I own roughly 80% of the stocks in his portfolio,and have hung on to a lot that he sold)

More importantly for me as a retiree is there is lower volatility with our portfolio (there is a variety of source documenting this) . This allows me to sleep well with higher concentration of stocks than most people have.

I do think people have tendency to view index funds as a panacea. The average investor in an index fund underperformed the index by a considerable margin, 1.5% less/year for the Vanguard S&P 500 investor and 1.3% less for the Vanguard Total Bond investor over the last 10 years. People who own index funds are just as likely to buy high and sell low as others. Buying index fund is easy not selling them at the wrong time is harder.

I found Peter's talk interesting. I am definitely in the optimistic camp and more deterministic than indeterminstic. The world needs more people like Peter Thiel who believe you make you own luck. I also think it needs people who believe they can pick stocks. If every index fund disappeared tomorrow it really won't affect me. If every stock picker disappeared tomorrow all the index fund folks would be in world of trouble.

Unfortunately, Peter is much better thinker and entrepreneur than a speaker.