Gyroscopic Investing

FYI.

Brett Arends, on CBSMarketwatch.com makes a case for owning 50 individual stocks as opposed to, say, VTI.  Maybe like buying gold coins rather than SGOL.

Buy stocks for $500, the cost of a new i-pad!  He suggests a better return, too.

Let me know.  I have learned much here since September.

There's no brokers that let you buy 50 different stocks at low cost yet compared to an index fund.  Motif tops out at 30 for $9.95.  It would be great to be able to do it to take advantage of tax harvesting.  Most indexes have way too many stocks anyway so that whatever factor you're trying to sniff out is overdiworsified.

Very uneconomical both in terms of expenses and time. If you own individual stocks you need to be prepared to invest the time into researching them properly and keeping tabs on them. You need to know when to buy and when to sell. Even Jim Cramer has repeatedly warned home gamers to avoid oversized stock portfolios because you will not be able to adequately keep tabs on all of your positions. He advises no more than six for most people.

The suggestion, from http://www.marketwatch.com/story/the-am ... 2015-03-12, is that an equal weighting of 50 randomly selected stocks from (say) the S&P 500 will typically beat the market cap weighting you'd get from an index fund and most actively managed funds as well.

The basic idea has come up before see, e.g.,

• http://gyroscopicinvesting.com/forum/st ... weight-sp/
• http://gyroscopicinvesting.com/forum/st ... d-indexes/

"Smart beta" will add 1-2%/year over market cap weighting and beat equal weighting because it follows the PP philosophy of selling winners and buying losers (value vs growth).  All rebalancing strategies do that, technically.  But on a microeconomic level it is very risky to rebalance into anything but relative undervaluedness.

bedraggled wrote: FYI.

Brett Arends, on CBSMarketwatch.com makes a case for owning 50 individual stocks as opposed to, say, VTI.  Maybe like buying gold coins rather than SGOL.

Buy stocks for $500, the cost of a new i-pad!  He suggests a better return, too.

Let me know.  I have learned much here since September.

If you do decide to purchase individual stocks, consider dividend growth investing.  David Fish releases a spreadsheet of Dividend Champions each month which can be downloaded here:

http://www.dripinvesting.org/tools/tools.asp

...See the following tutorial on filtering the list for those funds with the current best dividend histories, yields, growth targets, etc:

http://seekingalpha.com/article/291627- ... eed-factor

The spreadsheet contains mainly large, established, moated companies, so you likely won't be purchasing an Apple-Computer-in-its-garage-days.  Keep in mind that there are also ETFs which winnow out stocks based on past dividend increases.  See Schwab's SCHD for an example.  An ETF like this can save you time and effort, but the yield will be reduced.

Full disclosure: I just invest in an S&P500 index (SCHB) and forget about it.

rickb and MG,

Thanks.  As I suggested, I have much to learn.

You PP pros teach me much.

This gives me the chance to go with Winnie on a Grand Explore!

I must take a "hony" pot to sustain myself.

Again, you folks are a challenge.  Time to read those rickb articles

Cheers!

bedraggled wrote: FYI.

Brett Arends, on CBSMarketwatch.com makes a case for owning 50 individual stocks as opposed to, say, VTI. ....  He suggests a better return, too.

Even if a better return is identified, over what time period, and can it beat the index for decades?  I love how the authors always start the study at one particular date in the 1970's. How about starting the study at a bull market peak and following into a bear market or recession?!

Considering that index investing wins over the long term in research I've heard (looking at experienced mutual fund managers as a cohort) I'd hate to see how bad individual investors look in a similar study. What's that term, "chimpanzees throwing darts"? 

There are two ways for buying individual stocks to beat a stock index:

1. Lower transaction/maintenance costs than the index. Likely impossible; it's easy to buy a stock index for no commission cost and a 0.05% ER or less. You'd be hard-pressed to beat that buying stocks yourself.

2. Your selection of stocks outperform the full contents of the index ; i.e. stock picking. This raises the obvious question: how do you know which stocks are going to outperform the index? If this was easy, there would be no such thing as a stock index fund; people who think they can do this are mostly delusional narcissists. A few are canny winners, of course; you've got to ask yourself a question: "Do I feel lucky?" Well do ya, punk?

Pointedstick wrote: people who think they can do this are mostly delusional narcissists.

LOL, I must be under their narcissistic spell,  is this what has me drawn to the business channels for entertainment?! 

People,

I believe my questions are well on the way to being answered.

Mike59:  good point when you suggested these studies could start at the bull top and then run it out.

Thanks

Mike59 wrote:

Pointedstick wrote: people who think they can do this are mostly delusional narcissists.

LOL, I must be under their narcissistic spell,  is this what has me drawn to the business channels for entertainment?!

More like that's who they are, and they're trying to convince you to follow a path that probably none of them actually followed themselves; the way to make real money from delusional narcissism is acting or politics, not market speculation!

Several mentions of the cost being prohibitive for individual stocks.  I get 30 free transactions per month through my brokerage account.  So could amass a collection of quite a few individual stocks in a short time, creating a small "fund" of my own with zero cost/zero expense ratio.  Indeed I have done this to some degree, all with dividend champions/aristocrats.  However the majority of my stock holdings are in index funds -primarily VTI - for diversification, which I believe is the true advantage over individual stocks.  But if someone wanted to do it (create their own index of sorts) cost is no reason not to...

Pointedstick wrote: 2. Your selection of stocks outperform the full contents of the index ; i.e. stock picking. This raises the obvious question: how do you know which stocks are going to outperform the index? If this was easy, there would be no such thing as a stock index fund; people who think they can do this are mostly delusional narcissists. A few are canny winners, of course; you've got to ask yourself a question: "Do I feel lucky?" Well do ya, punk?

The behaviorial problems you alluded to is relatively simple to overcome nowadays with "Smart Beta" index funds.  Shit, even a dumb equal weight outperforms.

CBSmarketwatch.com says Warren Buffett is buying Phillips 66 (PSX), a crude refiner.  He now has 10%+.  PSX has a better chart than ExxonMobil (XOM).

Any thoughts?  This may be for a VP.

bedraggled wrote: CBSmarketwatch.com says Warren Buffett is buying Phillips 66 (PSX), a crude refiner.  He now has 10%+.  PSX has a better chart than ExxonMobil (XOM).

Any thoughts?  This may be for a VP.

I own PSX only because I was (foolishly) holding COP and the former spun off the latter. Since the spin-off, I've seen PSX do really well and COP and XOM (and CVX) tank. So I like PSX. Once upon a time, though, I bought BUD just because Warren B did, and I suffered for it.

And didn't Warren buy XOM and dump it shortly after.  Is that an indicator he will admit his mistakes or is he less adept these days.  The S&P 500 seems to have outperformed Mr. Buffett, or did I tread that wrong.

I am still intrigued by owning individual stocks.  My father gifted us adult offspring his utilities portfolio in 1997, 6 utes.  In 16 years, including dividend reinvestments, my share jumped from $20,000 to a bit more than $55,000.  He was pleased when I would update him on his utilities.  I had to sell them to pay for grad school tuition for his grandchildren.  This was acceptable to him.

I sold Dominion Resources (D) at $50 and it went to $80 before calming.

I may do individual for large cap, starting with Proctor and Gamble and buy back into Dominion and its little brothers and sisters, again.  Funny but those dividends made the Form 1040 annoying.  OF course half the stock portion would be in small cap stuff.  I imagine the future is bright but might I "Overshoot."

Thoughts, please.

bedraggled wrote: I may do individual for large cap, starting with Proctor and Gamble and buy back into Dominion and its little brothers and sisters, again.  Funny but those dividends made the Form 1040 annoying.  OF course half the stock portion would be in small cap stuff.  I imagine the future is bright but might I "Overshoot."

Thoughts, please.

Most of my individuals are largecap, because I bought them at a time when I was interested in rising dividends. When I got into indexing, I balanced out with small- and mid-cap index funds. But, if you're already interested in the pp, why not just keep it simple and buy VTI (total market)?

If you have enough to put $5-10K in each of 50 stocks and you really want to have fun, it won't kill you. But, is it worth it?

In 16 years, including dividend reinvestments, my share jumped from $20,000 to a bit more than $55,000

You probably would have done fine with a broader investment over 16 years, too, though I haven't checked.

I do something similar, for a starter i would clone the stocks of NOBL, historically it has outperformed the S&P500 by ~2% mostly by going down less during crashes. I try to avoid the overvalued stocks of the dividend aristocrats. If someone wants to read about that approach www.suredividend.com is a very good source.

The best and lowest broker is Interactive Brokers, i think i paid around 1-2$ per 6000$ of stock and you get very good executions. Most other brokers (especially the guys with zero commission) front run you and put the commision into the the bid-ask spread, which can be a lot more expensive depending on the size you trade.

Frommi,

Thanks.  Nice approach.

Dualstow,

Good point about the  aggravation vs. VTI but I may have the time.

My father requested we not touch the utility stocks and just let the dividends reinvest.  I gave them no thought at all.  They took care of themselves.  It was nice. If they were down, so what?  Just doing as I was asked.  I may have even been within the 15/35 bands of the HBPP- do not know.  It was effortless,  and then those 1099Ds every year for the 1040.  You are right that I probably could have done better but I may have benefited from that buy-and-forget approach
.

Did Machine Ghost say 30 stocks would be OK for the large cap portion?

I'm not sure what MG said.

In any case, I admit that I truly love my dividend stocks and find it hard to part with them. While I'm not adding new ones, they just keep paying, and it feels good during a sideways market. It can be spent or reinvested, and it's not enough to generate a tax bill.

The nice thing with an index is that it is dynamic so your holdings will change iver time to represent the best corporations.