Who prefers individual stocks and why?

[rjohnla]

While I like invest theory, as mentioned earlier, very conservative: Truth is made most of my wealth by saving cash with interest, not investing, and living frugally (not to be confused with cheaply). I assumed 0% growth in net worth in ER and can make it to about 90. Money will very likely outlive me. If I could make 5% return per year could live off just that. Guess that is a simple and lazy approach, but it worked. Last, whenever I could I did not defer taxes, so taxes might be due on 10-15k a year, if I withdraw that. So, guess I would just pay taxes on social security, maybe not, without any taxable income. Basically, tax return would show 0% income, cap. gains, etc. Would be very poor. It was a strategy put together: no significant capital loss and very low tax rate in ER.

 

[Dawg52]

I've moved primarily in the individual stock camp, but I stick mostly with the dividend blue chippers. I do look at the financials, but let the boys at Value Line and Standard and Poors do most of the research for me. So for me, it doesn't take a ton of time following the stocks that I own. I guess ignorance truly is bliss.

 

[freebird5825]

I've always been a mutual fund investor. I know what I don't know, which in this case is good stock picking. I'm comfy letting VG do my thinking as far as stocks in funds go (VHDYX, VTSAX, VWINX, VEUSX).

In recent years, I bought a few individual stocks for the hell of it...
CELG, BHP (because they bought out Petrohawk HK), and a few BKRB.

So far so good.

 

[rjohnla]

Hi freebird5825, guess you saw my last post. Spent some time researching, but minimal speculative investment. Just like the topic. The strategy was saving, not investing and not deferring taxes, so I knew what they were. All kind of done on automatic so didn't have to pay much attention when saving at the risk free rate. The future is not known only probability, it does not even exist now. So, what I did may change dramatically by 2016 if forecast is correct, but that is a whole different discussion. Possibly double / triple total worth, watching very closely, that's where my attention is really focused: significant LT trend changes. All the best.

 

[haha]

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

Wouldn't this expose her to significant capital gains taxes? She would get stepped up basis on one half of the assets, but the original basis would remain on the other half. In practice, I don't know how this rule is applied to the specific securities.

Ha

 

[FIRE'd@51]

In practice, I don't know how this rule is applied to the specific securities.

Half the basis is stepped up (or down) on each jointly-held individual security.

 

[FIREd]

I rely on mutual funds for international equities. But I invest in individual US stocks because there is more transparency in that particular segment of the equity world, which allows me to make more educated decisions, and because of the relative stability of select dividends in the US.

 

[haha]

Half the basis is stepped up (or down) on each jointly-held individual security.

Thank you Fired@51. Let me see if I understand. Say basis is $48,000 on a given jointly held security, and date of death value is $96,000. Step up 1/2 * $48,000 =$24,000 to 1/2* $96,000 =$48,000. So new basis is $24,000 +$48,000=$72,000.

Is this correct?

Ha

 

[MDJO]

Mostly index funds for me, but I have about 20% of portfolio in BRKB, PFE, LLY, AEP, GEFB, AZN, BPL. Looking for good ideas to invest excess income/dividends.

 

[FIRE'd@51]

Thank you Fired@51. Let me see if I understand. Say basis is $48,000 on a given jointly held security, and date of death value is $96,000. Step up 1/2 * $48,000 =$24,000 to 1/2* $96,000 =$48,000. So new basis is $24,000 +$48,000=$72,000.

Is this correct?

Yes - your math is unassailable.

 

[dunkelblau]

My 401ks are in mutual funds (100% equity, mostly international), but my brokerage account equities including IRA are by far mostly in individual stocks (mostly US small caps, and some mega cap ADRs). For me stock selection is something I enjoy doing so any performance shortfall and the higher expenses I consider to be cost of entertainment. I can't do much with spreadsheets so at the end of 1998 I sealed a trading account that I funded with a year's pay. I covered taxes on its 1099 items outside this account, but all fees and commissions were paid from its cash balance, and nothing moved in or out. A couple of months ago it hit six times the dollar value of what I put in 14 years ago, so I don't think my performance was that bad. I've also got a bad case of the sprawls with this one, I'm harvesting the losses this year and hoping the gains hold until my W2 stops.

So I guess for me the pluses are fun and a finer degree of control, and the main downside is the record keeping. BTW I have nothing against mutual funds, all my bond and money market holdings are in those.

 

[haha]

Yes - your math is unassailable.

LOL. Thanks.

Ha

 

[LOL!]

Half the basis is stepped up (or down) on each jointly-held individual security.

I think this might really depend on what state they live in. My mom stepped up 100% of everything when my dad died. State was Texas and no one has tried to argue with that over the past couple of decades.

 

[FIRE'd@51]

I think this might really depend on what state they live in. My mom stepped up 100% of everything when my dad died. State was Texas and no one has tried to argue with that over the past couple of decades.

Texas is a community property state. If the stock was held as community property, the surving spouse would receive a double step-up in basis. If it were held jointly only half the basis would be stepped up. Evidently your parents held everything as community property instead of joint tenancy.

 

[Ed_The_Gypsy]

Quote:
Originally Posted by Ed_The_Gypsy

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









Wouldn't this expose her to significant capital gains taxes? She would get stepped up basis on one half of the assets, but the original basis would remain on the other half. In practice, I don't know how this rule is applied to the specific securities.

Ha

I suppose it would if it were not in an IRA, but it is. Right now, my/our only investment outside of the IRA is the house.

The idea is to simplify things for her (and maybe me if my marbles fall out before I leave the game).

 

[haha]

I suppose it would if it were not in an IRA, but it is. Right now, my/our only investment outside of the IRA is the house.

The idea is to simplify things for her (and maybe me if my marbles fall out before I leave the game).

I forget how much of many people's savings are in tax-deferred programs. This makes it easy.

> 2/3 of mine is taxable.

Ha

 

[Animorph]

Rather than selling everything and buying a single fund, I told DW she could just leave everything where it is. No fancy rebalancing, but that's just a marginal benefit anyway. We don't hold anything I wouldn't mind keeping a long time.

 

[DeborahB]

I have no mutual funds at this point - just individual stocks that pay dividends. There are a few major losers but also some major winners. This isn't a good time to buy stocks - though you never know. IMHO at some point the market will lurch down for a bit and I'd buy then. Since my stocks are paying dividends it lessens the market impact, as does the fact that the Dow was around 9,000 when I bought most of them. The dividends keep on coming (on most).

I also own a REIT and a - don't know what you call it, company buys key man insurance policies that aren't needed (in the $1M + size, good quality) and pays a hefty interest rate to me. I kind of laddered the money in that one. 6 mos. at 4 3/4 %... 3 years @7%. Seems fine to me. YMMV!

I have a pretty diverse portfolio and I actually like following this stuff, but I'm not a technical analyst - I go on gut instinct for the most part (assuming the balance sheet and industry looks okay).

Some of this is in tax-deferred or ROTH accounts, some in taxable. That affects things too.

 

[redduck]

...I actually like following this stuff, but I'm not a technical analyst - I go on gut instinct for the most part...

thinker25, you might want to re-think this.

 

[FinanceDude]

I like individual stocks for core holdings. However, it is so easy to buy a sector as part of an asset allocation in ETF's, so I combine those two ideas and it has worked well......

 

[ESRwannabe]

I buy individual stocks because it is the only way I can achieve my goals.

I've seen two stock market crashes so far and I am only 37. I am convinced that the only viable way to invest is to go back to the old "widows and orphans" method, which is based on creating income from your investments.

The majority of the stocks I own are boring. They provide domestic essential services. I like boring stocks. When I buy into them I do so at a dividend yield that I am happy with. So, I don't need much dividend growth. I just need enough to offset inflation and I will be happy.

For the most part I can ignore the stock market. What I pay attention to is the quarterly results for each company. I have found this to be a low key, even enjoyable, way to invest.


Here are five examples:

Southern Company = A large utility company in the south east. Provides power for four states.

Waste Management Inc = Largest waste management company in the US. Owns and operates landfills, recycling, etc.

Correction Corporation of America = Largest private prison company. Owns and operates prisons, also the largest prisoner transportation company.

HCP Inc = Owns real estate leased to health care companies all over the US like nursing homes and hospitals.

AT&T = One of the largest telecom companies in the US.

 

[galeno]

We used individual stocks from 1995-2005 and did very well. Since 2006 we use cheap ETFs and funds.

The main difference is time and stress. With our ETF / fund portfolio, I can completely ignore it and check on it once a year.

With individual stocks I was basically watching the market all the time.

 

[clifp]

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

I think the flexibility is more important now than ever, with significant subsidies available for Obamacare. It is extremely important to manage your income to avoid the very steep cliffs with losing out on subsidies. By judicious selling of some individual hedges I am managed to end the year with ($1,000) loss for the year, not that it matter this year but potentially next year, it might.

Not easy to do with coach potato portfolio of 3 or so ETF or funds.

 

[clifp]

Addressing the OP main point. We have rehashed this in the past so I'll make this pretty short.

Virtually all the research showing the average investors does worse than index has been in the form, of looking at actively managed funds and finding out that yes they do provide investor with worse performance due to higher expense. But mutual funds are run by people and the fund manager change routinely. Nobody to my knowledge has actually tracked the investing performance of say the 2003 class of MBA students from Harvard, MIT, Penn etc who took jobs at Wall Street and see how they've done 10 years latter. Now if that study shows that aggregate these folks did worse than the index that would interesting.

The analogy somewhat flawed is you look at professional sports franchise only the Lakers, Celtics, and Yankee have win percentage over 600, in fact on average everybody else does worse than 500.. Then conclude that general managers/coaches don't matter so you higher the least expensive GM/coach.

Finally I have been invested mostly but not entirely in individual stocks since in my early 20s I've learned a lot over the last 30 years. Mostly I've learned that I have a good temperament for buying stocks and Warren Buffett says temperament is more important than intelligence.

Much of the confidence I had to buy in 2008 and early 2009 was because I have the skill to do fundamental analysis on stocks. It was much easier to say Apple was cheap at $85 in Dec 2008, or write long post explaining why Berkshire was very cheap at $70,000 a week before the market bottom in March 2009 than to make the generally argument that the whole market was cheap.

So yes for the average investor stick with index mutual funds, but when it comes to investing neither myself nor many of the board members are average.

 

[Dawg52]

I'm still an individual stock guy although I do own a couple of etf's and one international fund. But I admit, I would have done better this year if I had simply used index funds with the same AA. But sometimes it works the other way. My returns are better over the last 5 years using individual stocks vs index funds.

As I get older, I will probably move more towards funds. The more my brain rust, the simpler I need to make it.