Individual shares ownership vs. index funds

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babysquirrel
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Re: Individual shares ownership vs. index funds

Post by babysquirrel » Mon Mar 16, 2015 6:00 am

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...
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MachineGhost
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Re: Individual shares ownership vs. index funds

Post by MachineGhost » Mon Mar 16, 2015 9:35 pm

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.
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Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
bedraggled
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Re: Individual shares ownership vs. index funds

Post by bedraggled » Wed Feb 03, 2016 5:30 am

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.
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Re: Individual shares ownership vs. index funds

Post by dualstow » Wed Feb 03, 2016 8:50 am

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.
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bedraggled
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Re: Individual shares ownership vs. index funds

Post by bedraggled » Wed Feb 03, 2016 9:48 am

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.
Last edited by bedraggled on Wed Feb 03, 2016 9:58 am, edited 1 time in total.
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dualstow
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Re: Individual shares ownership vs. index funds

Post by dualstow » Wed Feb 03, 2016 10:41 am

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.
Last edited by dualstow on Wed Feb 03, 2016 10:43 am, edited 1 time in total.
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Re: Individual shares ownership vs. index funds

Post by frommi » Wed Feb 03, 2016 11:39 am

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.
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Re: Individual shares ownership vs. index funds

Post by bedraggled » Wed Feb 03, 2016 2:05 pm

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?
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dualstow
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Re: Individual shares ownership vs. index funds

Post by dualstow » Wed Feb 03, 2016 6:14 pm

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.
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lordmetroid
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Re: Individual shares ownership vs. index funds

Post by lordmetroid » Fri Feb 05, 2016 8:10 pm

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