Who prefers individual stocks and why?

[rjohnla]

Hi, curious, never bought an individual stock. Started with mutual funds, stopped and now only EFT's', long or short. Historical data indicates investor's who buy the market, DOW, S&P, etc., do better than those buying stocks. It costs less as well.

 

[WestLake]

I've done well with them in my Roth - have bought dividend stocks w value and or growth. The plan is never to withdraw from this as I would like to leave it to my niece (I'm 55 and a year or so away from RE).

 

[chasesfish]

I prefer them in my regular brokerage account, they're easier to manage the taxes compared to mutual funds, When I need to sell something, I can take LT gains. I can also donate appreciated shares. It's not for everyone, you have to pick 4-5 stocks and be wiling to do your own research

 

[rjohnla]

I like your strategy with taxes at LT. Many times since I will move in / out in ST and get taxed at my marginal rate (ouch). Absolutely agree with number of stocks, would go a little higher maybe, but absolutely no more than 10-12. Last, yes, those who take the time to do their own research, and know what their doing, will likely beat the market. I use technical indicators and look for ST and MT trends, time markets, but only with small percentage of net worth and it is high risk speculative investing, but high returns as well, if I'm right.... (the rest is saved, not invested)

 

[MRG]

I agree, the other great thing is locking in profits , or avoiding losses. I can move in or out immediately, yes it costs the commision, but that can be inexpenisve.

 

[Animorph]

I gave up on individual stocks when I wanted to heavily diversify internationally. I'm not going to do all that work for developed international and EM stocks.

 

[chasesfish]

I read the thread and thought I'd clarify - 20% of my investments are in my taxable account and individual stocks. 8 stocks in my holdings currently.

 

[bssc]

I have always held individual stocks. Costs are low, no trading cost on my account but now a $6 document fee per trade as long as I don't do more than 10 trades a month. I follow a newsletter which matches my investment style. I do it for the low costs, since I buy and hold, plus I can control tax consequences when I sell.

 

[rjohnla]

Hi bssc, just thinking about what you wrote. I have subscribed to a couple of investment newsletters (Weiss, Dent), mostly for commentary. I find it hard to put their model portfolio's together. To clarify, it is stated X stock in portfolio had a 20% gain, listed as "buy". Why would someone buy a stock that just went up 20%, what is the probability of that continuing?

 

[GrayHare]

Individual stocks can fund retirement similar to an IRA or 401k, sometimes even better: you pay no tax until you choose to. Here's how: buy a non-dividend-paying growth stock such as BRKB, hold it into retirement, and you'll pay tax only when you sell, and then not at ordinary rate (like would will for an IRA) but rather at the typically lower capital gain rate.

 

[haha]

Given OP's prosecutor-like structure to the question, I would say that I must like individual stocks because I am deluded and /or stupid.

Ha

 

[rjohnla]

Hi haha, I guess I am OP? - means, new to site? Perhaps? The question was just for discussion, and being curious, as I know many people buy individual stocks. As a technical vs. fundamental market analyst both which are based on various theories. Therefore, I look at aggregate numbers and trends, patterns, crowd psychology, etc. But, After research I had to abandon fundamental analysis as the underlying theories required that many factors present not be considered for the theory to work, e.g., Markowitz Theory, which represents the majority of investment style: Diversify, Buy & Hold Long Term. As for my writing, well that comes for some 25+ years as a regulatory compliance officer, working in legal department; not a lawyer. I do not know you, so would have no rational basis to believe you deluded and /or stupid. I would think you can rationally explain your investment strategy.

 

[Alex in Virginia]

Hi, curious, never bought an individual stock. Started with mutual funds, stopped and now only EFT's', long or short. Historical data indicates investor's who buy the market, DOW, S&P, etc., do better than those buying stocks. It costs less as well.

Hello, rjohnla (and everyone)...

I don't mean to reopen this can of worms, but since you asked, I only invest in individual high-dividend stocks and individual high-yield bonds.

And here is the can of worms.

http://www.early-retirement.org/forums/f28/attack-my-high-yield-investing-64532.html

Cheers,

Alex in Virginia

 

[rjohnla]

Hi Alex, ok, I looked a the link, no attacks, well maybe slight attacked - just kidding. There definitely is something to be said for buying stocks with consistent high dividend payout, they may not have the capital gain of a coming re-investing for growth, because they are solid large companies with strong brands or non-discretionary products - pharmaceutical companies. And look large global companies, the realign ones, one has so much cash reserves it bought a bank to put it in. As far as bonds, well individual investment grade bonds I'll go with. Probably issued by the same companies with consistent high stock dividends. I like your yield. Just wonder if you've looked at it on a risk adjusted basis? Happy Returns!

 

[ERD50]

Hi haha, I guess I am OP? - means, new to site? Perhaps? The question was just for discussion, and being curious, as I know many people buy individual stocks. ...

OP means "Original Post" or "Original Poster", just a shorthand way to refer to the start of the thread or the person who started the thread.

As far as his response, if you look at the way you worded the 'question', I think you will understand. Paraphrasing, ' Funds/ETFs perform better and cost less, so tell me why you buy individual issues ' , is kind of like saying 'Since they perform better and are cheaper, you must be deluded/stupid to buy individual issues.'

I kinda missed it, as the title was self-explanatory, I just skimmed the actual post. But if you really want to post a question (many seem to post in question form, but are just looking for validation), then leave it open ended. Maybe something like:

' I see some advantages to ETFs/Funds, such as diversification and low fees. What are the pros/cons of individual issues? '

will come across as not being pre-determined.

As for myself, well, the pros of individual issues has been covered. You can be more flexible with cap gains/losses. If you feel you have some special insight, you can be more specific. For me, those advantages are not that great, so I'm mostly funds/ETFs. For others, they could be the right choice. But if you don't have the motivation/skills to analyze individual issues, I think you are better off with broad index ETFs/Funds.

-ERD50

 

[pb4uski]

I'm not keen on individual stocks. While I have a financial background, I don't have any interest in devoting the time needed to do a credible job of researching a company - I just have better things to do. Also, the volatility of individual stocks would not be to my liking but I suppose if I had enough different issues/industries to be well diversified that might be less of a concern.

 

[LOL!]

...
As for myself, well, the pros of individual issues has been covered. You can be more flexible with cap gains/losses.

I have no problem with mutual funds with regard to cap gains/losses and giving shares to charity. I've always used "specific ID" when selling shares to reduce taxes and to tax-loss harvest. It don't matter to me whether they are stock shares, mutual fund shares, or ETF shares. Shares is shares.

 

[rjohnla]

Hi ERD50, Thanks for the explanation and suggestion about posting. Yes, that is what I meant to come across, have a tendency to 'write with assumption' sometimes. Historic data does indicate that overall an investor that buy's the market does better than investor buying individual stocks. I also agree doing the analysis to pick such stocks requires a lot of research, understanding and some skill. People do it though. I read recently that Buffett made most his / the money on around 10-12 stocks. For me, to be more exact, some may say market timing and going long /short with technical's, patterns, etc., is high risk investing. It takes, I guess, the same amount of effort as to pick a good stock. Earlier in a thread I said it was speculative funds only and small percent of total assets, can afford to lose it. The vast majority is not invested, rather "saved", T-bill funds, A rated bank accounts, CD's - very low risk of capital loss. So net very conservative for now. So it was meant to be an open discussion about what people thought. On a percentage basis, for me, it is not critical at all, so theory discussion intended. Sorry for the misunderstanding if it you understood it differently. Did enjoy reading what you were doing and why and experience. Cheers!

p.s. ERD50, think that is one major reason I want to ER, after 26+ years of regulatory compliance, analysis, decisions (if wrong, violated regulations) explaining and writing, it's taken it's toll and what I do, write, say, maybe comes across too abrasive? People come to me and want answers or to solve regulatory issues - generally I'm not the guy with the job who people 'enjoy' contacting, or having me contact them. Investment theory is a personal and enjoyable interest for me.

 

[rjohnla]

Hey All, just read name of forum again. Think my next post will be: "Do You Think Security Analysis is Based on Theory or Fact?" Please no......(to me).

 

[ERD50]

I have no problem with mutual funds with regard to cap gains/losses and giving shares to charity. I've always used "specific ID" when selling shares to reduce taxes and to tax-loss harvest. It don't matter to me whether they are stock shares, mutual fund shares, or ETF shares. Shares is shares.

True. What I was thinking is, say you had 30 stocks, and let's say on average they followed the market pretty closely. Probably some would be up, some down, so you could realize a loss or a gain if you needed. But with an ETF that matched the market, you would have to go with what it was (up/down/flat).

OK, you might have ETF shares purchased at different times, and that would give you some choice. But I think on average, 30 stocks would provide more flexibility. It may or may not be significant, but it's something to think about.

-ERD50

 

[KMyer]

True. What I was thinking is, say you had 30 stocks, and let's say on average they followed the market pretty closely. Probably some would be up, some down, so you could realize a loss or a gain if you needed. But with an ETF that matched the market, you would have to go with what it was (up/down/flat).

OK, you might have ETF shares purchased at different times, and that would give you some choice. But I think on average, 30 stocks would provide more flexibility. It may or may not be significant, but it's something to think about.

-ERD50

This is the approach I take. I own 30 to 50 different stocks. I can contribute appreciated stock to charity, harvest losses to offset capital gains from appreciated stocks that I have lost confidence in, but mostly I buy and hold the stocks awaiting retirement and the anticipated lower marginal tax brackets.

 

[Ed_The_Gypsy]

Right now, everything is in my IRA and is 100% equities. 2/3 of my investments are in mutual funds, almost all index funds. The balance, 1/3, is in 14 individual stocks (I did not realize how much it was until just now), mostly in oil and gas and pipelines. Until about 5 years ago I was only in mutual funds.

Long ago, I started with mutual funds, all high-cost ones, chasing performance. After several years, I noticed that the fund that appeared every year in Forbes' September Honor Roll was Vanguard's S&P 500 index fund, but few others were there even two years in a row. Switched everything to VFINX.

Later learning about the value of international diversification (Efficient Frontier, Less Antman, Paul Merriman) and slice-and-dice (Pietro), I divided some of it up into international, small cap and value index funds. I started to learn about dividends.

Over the years I bought a little of two technology stocks, both disasters but I got out before they died. Fingers burned.

Later, I took positions in health care (managed) and energy (index) funds, figuring that these were two areas that had good long-term prospects. So far, so good.

After a while, I figured that I ought to be able to pick a few good oil and gas stocks (I work in oil and gas) and avoid the dogs and the frauds, so the energy index fund was liquidated for a few individual stocks, which I try to buy on weakness. I have a few that are speculative, in oil sands and pipelines, but I don't think there is much downside risk there, especially in the long run (unless cold fusion comes back). Yes, I am overweighted in energy. I don't see too much downside risk in the long run, though, and the dividends pay me to wait.

Still, it has worked out pretty good so far.

I have set up a brokerage account outside of the IRA, to park IRA distributions and to invest what I don't spend in retirement. I might get some individual stocks, but it is getting late in life and I might just stick it all in Wellesley.

When I croak, DW has instructions to sell everything and put it into Wellesley.

 

[MooreBonds]

I'm in the 'individual stock' camp. That view morphed slowly over time (I suppose a latent "wanting to be in control" trait subconsciously expressing itself). Because I believe in diversification, my portfolio has morphed into its own monster, with about 400 positions overall (about 65% individual stocks, 35% ETFs/mutual funds in terms of numbers, but probably about 50/50 in terms of equity values).

As my portfolio grew from gains and contributions in the early 2000s, and realized ER was a possibility after wandering onto this site, I started to add individual stocks that I felt had better prospects and yields compared to the market as a whole, and the feeling that I would rather own stocks with lower PEs and better yields/growth prospects compared to, say, S&P500 or a Wilshire 5000 index. Another trait leading to individual stocks is that I tend to make sector bets. I might learn that a few (1 to 3) stocks in a certain sector are beaten down, so I might add a few in that sector to my portfolio, given my interest in value over growth.

And, as I continue to creep closer to ER, the dividends become more central to my plan to hopefully live off of the dividend income alone, with using small capital gain distributions/sales for infrequent additional splurges. Because the individual stocks I look for have higher dividend yields compared to the indexes, I'd rather go for a relatively 'stronger' floor of dividend income with smaller prospective capital gains, rather than a lower yield from an index with a hope for capital gains and then selling off part of my portfolio to fund my needs. And I also have a big slug in MLPs (mainly pipelines), and the only way to gain exposure to those is individually or an ETF- and I have enough holdings to diversify myself to not need to pay 0.60% expense ratio to a fund to hold the exact same MLPs as I hold individually.

For international holdings, while I do have some small holdings in indexes (World, Asia, Europe), the "are you smarter than an index a 5th grader could invest in" thing is kicking in, and I feel like I want to decide which specific countries have better growth (Russia, Eastern Europe, specific Asian countries) compared to the overall world indexes, since many world indexes seem to have just a sliver in the truly emerging economies - and even in emerging indexes, many are so heavily weighted to the likes of Brazil, India and Russia that you get hardly any exposure to other emerging/frontier economies.

I do have a large percentage (maybe 15-20%?) of US stock fund ETFs, and a much smaller individual holding list of international stocks vs ETFs/funds, so it's kind of a hybrid approach in terms of individual stocks vs ETFs vs indexes.

 

[Midpack]

I held almost nothing but individual stocks in my 30's and 40's. I did so because there are far greater gains (and losses) possible with individual stocks, and there are no CG taxes until you sell shares. It took more study and tracking, but I did very, very well with MSFT, INTC & CSCO (15-bagger) especially - probably just lucky. Yes, I held some duds too, but they were fewer and further between. But in my late 40's, early 50's I consciously shifted all my equity holdings to MF's to reduce volatility, and that's when I started to hold bond funds as well. I don't have the time or the $ need to follow individual shares at my advanced age...

 

[ShortInSeattle]

I did poorly with individual stocks, and found the analysis piece to be difficult. Companies tend to be opaque about their true condition until earnings time, and even then the financial statements seem to hide a lot of nuance. I had trouble reading between the lines. Much happier with the lazy portfolio approach.