Stock picking vs index fund investing

[moneymaker]

Has anyone found that they decided to go almost all or ALL indexing because after researching your own portfolio performance from picking your own stocks, realized that it decisively lacked the performance of index funds?

Or am I the only one....haha.

[samclem]

Quote:

Originally Posted by moneymaker Has anyone found that they decided to go almost all or ALL indexing because after researching your own portfolio performance from picking your own stocks, realized that it decisively lacked the performance of index funds?

I chose to go with index funds based on the published research. I guess folks do look at their own results and come to conclusions, but that's a pretty thin sample size and a small number of market conditions--it really doesn't tell you very much and it would be hard to backward-analyze to determine if your risk-adjusted performance was better than an appropriate index. More robust studies that control for the appropriate variables have been done and that's what convinced me.

I do still own some low-cost managed funds, because the tax implications of selling them would be high and they have been doing well for decades.

[Senator]

I used to pick stocks, could not beat the index consistently. My 401K outshined my after tax account.

I could pick winners, but could not sell after a gain. I held them way too long and lost. Or was afraid to sell because of paying taxes. Or set up stop losses that hit and then the stock went back up.

With index funds, I set and forget. Reinvest dividends. Walked through this semi-correction without thinking about it.

[youbet]

I have a large position in a low cost TSM index fund but also do some individual stock trading. 9 yrs into ER it's working OK.

It does seem like there are so many indexes and funds that track them that you can be an active trader buying and selling nothing but index funds these days.

[Sunset]

I do both, but am slowly working my way towards just index funds.
I'll always probably keep a small amount out for individual stocks for the fun of it.

Biggest problem with individual stocks is the black swan effect, kills your returns.

I researched one company a lot, knew the industry, so bought some, the next day the CEO is charged with accounting fraud

[aja8888]

Note to posters: Moved this thread to the Stock Picking and Market Strategy Forum.

[Onward]

In the 90's I was a stock picker while also holding SPY.

SPY beat me by a mile, so I switched everything to indexing and have never gone back.

Reading A Random Walk Down Wall St. had a lot to do with it, too.

[Fermion]

I think you have to choose index funds unless you have a lot of time for research and a lot of money to be able to diversify in the individual stocks.

If you have a lot of time and a lot of money, then yeah stock picking probably beats index fund investing. I am thinking about a minimum of 100 to 150 individual stocks spread across many sectors.

Or you could have bought Berkshire at practically any time in the past xx years and beat the index.

[Totoro]

I'm still in the decision process. Jury seems to be pointing at indexing at this point, but I only have been at individual buys for a bit over 4 years. By december 2017 I'll finally decide.

I also have a 'magic formula' experiment running, that'll go on for 3 more years (dec. 2018).

[urn2bfree]

Quote:

Originally Posted by Totoro I'm still in the decision process. Jury seems to be pointing at indexing at this point, but I only have been at individual buys for a bit over 4 years. By december 2017 I'll finally decide. I also have a 'magic formula' experiment running, that'll go on for 3 more years (dec. 2018).

Judging stock picking over the last 4 years, a word of warning-

Don't mistake bulls for brains...


Sent from my iPad using Early Retirement Forum

[Totoro]

yeah, it's why I extended the initial evaluation period from 5 years to roughly 7. Market has been mostly one way and that's not a good way to measure performance.

Still too short then to definitely know whether it was luck or skill (or bad luck and no skill), but at least an indication should be doable.

[devans0]

I have recently started looking at moving some money over to value investing. I have a lot of research to do first. A prof and economic tells me he soundly beats indexes. He said that he gets good diversity with 27 sectors, if I remember correctly. I dunno what they are, yet. Baby Berks will probably be my first toe dip.

[pb4uski]

When I was in my 20s I did some individual stock investing through a broker at Dean Witter across the hall from where I worked at the time. The results were mixed.... some winners and some losers, but nothing great. I decided that the amount of time needed to research stocks was more than I cared to use as i had better things to do that reading 10ks 10qs and analyst reports, so I focused on funds and index investing.

In a subsequent job I had a friend whose hobby was playing the stock market... he spent a lot of time doing it and was reasonably good at it... so much so that I recall that in one year his trading profits exceeded his work earnings and he proceeded to later lose almost as much but he ultimately developed his craft so that he publishes a tech-sector investing newsletter.

[W2R]

Quote:

Originally Posted by moneymaker Has anyone found that they decided to go almost all or ALL indexing because after researching your own portfolio performance from picking your own stocks, realized that it decisively lacked the performance of index funds? Or am I the only one....haha.

My father loved investing, and by the time I was in elementary school he had taught me what the word "diversification" meant and the value of it, not only in investing but in many other areas of life.

OK, so I come from a weird family.

Anyway, by the time I had money to invest outside the TSP, index mutual funds were easily available at Vanguard. What an easy tool for diversification, especially for a "beginner" without lots of money to invest. I chose them immediately for that reason. I do have some Wellesley, which is actively managed, but most of my portfolio is in index funds.

[petershk]

I'm almost totally indexed now for that reason. I really like doing the research and figuring out how companies work... But I hate the stress of ups and downs so... I just plan on having a small % to play with..

I enjoy it... But I'm not that good at it statistically over the past decade or so.

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[jabbahop]

tried it and stunk @ stock picking. It really struck home when I was an insider for my company (access to financial results and restricted trading window in our company stock). Despite this supposedly huge advantage, I was wrong as often as right on whether the stock would go up or down.

I am trying to unwind years of deferring to a financial planner and her recommendations of expensive actively managed funds and going with low cost index funds.

[O2Bfree]

Quote:

Originally Posted by Senator I could pick winners, but could not sell after a gain. I held them way too long and lost. Or was afraid to sell because of paying taxes. Or set up stop losses that hit and then the stock went back up.

Same here. I picked up some stocks a few years ago that shot up, with one doubling in about a year. The companies had been around for awhile and I kind of knew it may have largely been media hype making them rise, but I was blinded by greed. Should have sold, now they're mostly way below my buy price.

But I've fallen for the opposite as well, where I should have stuck with my "hold" mentality. Back in the early 90s I had a little Nordstrom stock, just a hundred shares or so. My broker called, pointed out how it hadn't really done much, and offered to move it to a hot new cosmetics company. Should have held, I lost it all.