Index VS individual stocks

[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]

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]

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]

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.

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[Running_Man]

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

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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.


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[dixonge]

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

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]

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]

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.


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[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

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.

 

[NW-Bound]

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

When my timing is right, I make good money on sector ETFs too. Well, perhaps not as good as my best individual stock picks, but the risk is a lot less.

 

[gayl]

It varies with me too. Active Trader but not a Mark to Market Trader. Did OK early this week picking up 10 BAC STO 11 P Expiry 11/18/16 @ 66c. It's at 27c -- but may expire worthless so holding on. Meanwhile SPY is also doing well

It involves active monitoring if not index ETFs

 

[thepalmersinking]

So the Yahoo performance charts only show share price? I was try to further that out by looking at the dividend adjusted share price in the historical prices column and was getting confused.


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[bingybear]

So the Yahoo performance charts only show share price? I was try to further that out by looking at the dividend adjusted share price in the historical prices column and was getting confused.


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don't get confused. Just use the dividend adjusted price. This should do what you want. If you don't understand what is happening... every time a dividend kicks out it goes back and changes all older "adjusted price numbers". The prices it is today is just that. The way the calculation is kind of dividend reinvestment in reverse. Instead of adding the dividend amount to your investment, yahoo normalized to present day's price. So it subtracts the dividend from the adjusted amount before the dividend was made.

Look at the raw data around the dividend.. both adjusted and not adjusted. You should be able to determine what they are doing.

 

[thepalmersinking]

So, the performance chart on Yahoo Finance is using the pricing that includes dividends? I usually hit that chart for my comparisons.


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[bingybear]

So, the performance chart on Yahoo Finance is using the pricing that includes dividends? I usually hit that chart for my comparisons.


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Sorry... look at historical data... not plots. If you just use plots... any distributions are seen to effect stock value change. There is no other accounting. The previous post noted about "dividend adjusted return" which indicated to me that he was aware of how to look at historical data... not just plot data.

on the new finance.yahoo look up a stock and below the plot are some tabs... click on historical data. You will see the data we are talking about with the second from the right column being "Adj Data*". This is what we are talking about. you can download the data and plot the Adj Data which includes distributions.

 

[jim584672]

An advantage of individual stocks is complete control over taxes. No worry about end of year distributions. I have seen some discount brokers charging $1 for a trade, at this price you could assemble 100 stocks and "buy the market". You can decide to take capital losses on your losers and/or lock in some LT gains on the winners. No recurring annual expenses is a nice plus.

 

[ERD50]

An advantage of individual stocks is complete control over taxes. No worry about end of year distributions. I have seen some discount brokers charging $1 for a trade, at this price you could assemble 100 stocks and "buy the market". You can decide to take capital losses on your losers and/or lock in some LT gains on the winners. No recurring annual expenses is a nice plus.

I get your point, but it isn't strictly 100% control over taxes - there are still dividends to consider, something you have no/little control over. And didn't Microsoft issue a $10 'special' dividend years ago, and I think Ford did something similar? But yes, these are far and few between compared to ETF/fund distributions.

Being able to control cap gains is a plus, as is a far lower chance of unexpected/unpredictable distributions. And even with $5 trades, and infrequent trading, the costs would likely be lower than the ER of an ETF, for a good sized portfolio.

I'm not sure that's enough for me to want to buy 100 individual stocks, but it is worthy of consideration, IMO.

-ERD50

 

[nash031]

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.

Roughly 40% of our portfolio right now is in two 403(b) style accounts that don't allow individual stock picking, so a good portion will be in index funds anyway. I also don't intend to incur large tax charges for movement, in part because I don't intend to sell very often. So I think my plan for now is to do this exclusively in my Roth IRA (a little over 10% of our portfolio). If I'm successful, I can add DW's IRA down the road, and potentially roll 403b's in as well.

But our taxable account will likely stay invested in index funds which will probably make up the good portion of our base portfolio and also be what we spend down first.

If the side investing is more profitable, it will just add performance to the whole, and become an increasing portion over the years. I don't intend to throw all of our accounts at it ever, but certainly not any time soon. We will see how it goes. I don't expect that I would rebalance in the event of outperformance, instead I think I would just let it ride. Same if I underperform... No throwing good money after bad! (This is just like poker, right??)

 

[triangle]

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

It is difficult to estimate. My investing did not start out as a daily activity and not even weekly. Over time as my interest in business, society, intersection of capitalism/government/politics increased, I spent more time understanding industries as well as individual companies and their future potential. Much of that would have been done without a desire to invest in individual stocks.

An advantage of individual stocks is complete control over taxes. No worry about end of year distributions. I have seen some discount brokers charging $1 for a trade, at this price you could assemble 100 stocks and "buy the market". You can decide to take capital losses on your losers and/or lock in some LT gains on the winners. No recurring annual expenses is a nice plus.

I took this approach with my non-tax-advantaged retirement account, which has evolved to include many more individual stock positions than I should probably keep. When I started this approach expense ratios were cheap but not as cheap as they are today and many managed funds had expense ratios that I could not accept. I had read and intuitively believed research which showed return results like a broadly diversified portfolio of 10 stocks would track within 90% of its index, 20 stocks would track within 96%, 40 stocks would track within 98.6%, etc. (those are not exact numbers, just examples to illustrate). So I started out with that in mind, hoping that I would beat the index but really only expecting to minimize overhead fees. Over time I believe I have gotten better at investing (emotionally and analytically) but I rarely obsess over any individual stock pick.

One downside to managing one's own personal index sample portfolio in a non-retirement account is what to do when a position gets over-sized. If you owned VTI or VOO there would be no action. But in a smaller sample portfolio it may be wise to reduce the position. Which triggers a bigger capital gain for that year.

All that said, my retirement account only invests in index funds as a way to insure that I am investing and not trading for the future.