thoughts on direct stock purchase?

[The White Coat Investor]

Oh I agree. The hard part is including dividends in the return since most websites ignore that in their calculations. I do mine manually and track it various various indices to make sure it's actually worth my time. It's a little pain in the butt at first, but spreadsheets are wonderful things and make the calculations very easy going forward once you get it up and running. You can then account for cost basis, dividends, splits, and actual (and potential) tax implications.

That's what I'm talking about. If you don't know how to do that (or don't want to put in the effort) you shouldn't be in individual stocks. XIRR is a beautiful thing. Here's my tutorial if anyone cares:

http://whitecoatinvestor.com/how-to-calculate-your-return-the-excel-xirr-function/

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[The White Coat Investor]

I found a basic one online that pulled data from yahoo finance so it updates the fund info. I have to manually enter in data, though for my 403b/457 contributions, including dividends and the like. Overall it's a nice setup for what I do.

Uhh....all you have to keep track of for XIRR is dates and contributions/withdrawals to the account. I guess if you want 50 individual stocks that kick out quarterly dividends it would be a pain, but it's pretty darn easy for 10 mutual funds with 1-4 distributions a year.

 

[The White Coat Investor]

Just my anecdote, only and exclusively...I love the railroads - like, preferentially take the train, get Trains magazine for the 3 year subscription, and even rode the "tram" from one side of a mall in Hawai'i to the other, just to be on the train. As such, I bought CSX, Norfolk Southern, and Union Pacific, just for fun. I divested most of the CSX and NS, but have my UP. I put $1K in 4 years ago - just over $100/share. Since then, split once, and is at $117 right now, so my $1K is worth about $2500. That's a pretty good return, but I was not looking at it as a strategic investment (such as "transportation" as a sector), but, instead, for fun (and they send me the calendar every year!), so I am not sinking every free penny into it. (I do fully fund my 403b for my "real" retirement account.) Still, I was thinking that, if ANYTHING was secure, it was railroads. And, BTW, damn you, Warren Buffett!! (He bought ALL of BNSF!)

This is the other thing that cracks me up about single stock investors. You're touting the $1500 you made on this stock. I could get the same effect by working a single extra shift and saving the proceeds. I mean, if you pick a stock and make $200K on it, okay, I'm impressed. But $1500? How big of a bet is $1000 in a stock? I mean, just the commissions to get in and out were a 2% drag on the returns. It doesn't matter what you put $1K into.

Not being personally critical, just pointing out that the overall portfolio performance is the key. A reasonable investing plan, a reasonable savings rate, keeping costs reasonably low- that's the path to success. The details are just that.

 

[Apollyon]

This is the other thing that cracks me up about single stock investors. You're touting the $1500 you made on this stock. I could get the same effect by working a single extra shift and saving the proceeds. I mean, if you pick a stock and make $200K on it, okay, I'm impressed. But $1500? How big of a bet is $1000 in a stock? I mean, just the commissions to get in and out were a 2% drag on the returns. It doesn't matter what you put $1K into.

Not being personally critical, just pointing out that the overall portfolio performance is the key. A reasonable investing plan, a reasonable savings rate, keeping costs reasonably low- that's the path to success. The details are just that.

I put $1k in, did nothing, and have $2500 in 4 years. Whatever. As I said, I was playing. It's barely a blip on my financial horizon. It's passive, not active, like having to drive to work, even (the worst thing on the roads is other people). And what if that extra shift is the day the 42 year old woman with the bad heart comes in, has atypical pain, and dies on you? When the music stopped, you were left without a chair. That patient is a time bomb, and just blew up any of the additional effect you got for working the extra day.

But, as I think of it, the percent return is 150%. Had I dropped $100K in it, I would be looking at $250K. I didn't, because, as I say (again), it was for fun, but, would that crack you up, with only the difference being scale? That sounds, to me, at least, in some way, rather elitist. "The initiation fee for the club is $25,000. Oh, you only have $5000? Sorry, buddy - you don't rate." Again, that wasn't my point. I wasn't "betting the house" (literally and figuratively).

 

[ThoracicGuy]

Uhh....all you have to keep track of for XIRR is dates and contributions/withdrawals to the account. I guess if you want 50 individual stocks that kick out quarterly dividends it would be a pain, but it's pretty darn easy for 10 mutual funds with 1-4 distributions a year.

My 403b is currently in one of the "automatic" plans. We're changing providers soon, so I haven't done anything about it yet, but my goal would be to get it to just a few funds. Ideally I could get access to a self-directed account for it.

 

[The White Coat Investor]

I put $1k in, did nothing, and have $2500 in 4 years. Whatever. As I said, I was playing. It's barely a blip on my financial horizon. It's passive, not active, like having to drive to work, even (the worst thing on the roads is other people). And what if that extra shift is the day the 42 year old woman with the bad heart comes in, has atypical pain, and dies on you? When the music stopped, you were left without a chair. That patient is a time bomb, and just blew up any of the additional effect you got for working the extra day.

But, as I think of it, the percent return is 150%. Had I dropped $100K in it, I would be looking at $250K. I didn't, because, as I say (again), it was for fun, but, would that crack you up, with only the difference being scale? That sounds, to me, at least, in some way, rather elitist. "The initiation fee for the club is $25,000. Oh, you only have $5000? Sorry, buddy - you don't rate." Again, that wasn't my point. I wasn't "betting the house" (literally and figuratively).

That's what I'm saying. In order to be successful, you need to have lots of winners, not just one on which you weren't willing to bet more than $1K. I mean, this one is lots of fun at cocktail parties, but that's about all it's good for. Successful investing is not about picking a few winning stocks. I don't think we disagree about that. The point isn't to be elitist, the point is that (if you're smart) you don't "play" with your serious money.

 

[Apollyon]

That's what I'm saying. In order to be successful, you need to have lots of winners, not just one on which you weren't willing to bet more than $1K. I mean, this one is lots of fun at cocktail parties, but that's about all it's good for. Successful investing is not about picking a few winning stocks. I don't think we disagree about that. The point isn't to be elitist, the point is that (if you're smart) you don't "play" with your serious money.

That was the intent of my post. If I was unclear, then I apologize.

 

[Plastikos]

Union Pacific even though it has some cyclical down times, has historically been an excellent investment and likely will continue to be so, IIRC it has returned somewhere around 16% the last 15 years or so, not bad at all (thats top of the head from a recent article i've read so...). Whether or not Apollyon knew this prior, that it has returned wealth to shareholders greatly over time and consistently done well. Given the 6 billion dollars CAPEX that buffet is putting into this year and its near monopoly on the US, and as long as oil keeps going by train...its likely going to continue doing well. Maybe he didnt have more than a 1000 to put down. You do well when you recognize a great opportunity, and then have the courage to go in heavily, which is not at all easy even when you can recognize the opportunity....like now say investing in greek/russian indexes for the long haul as they are extremely down, though russia isnt down enough quite yet. That is a fairly low risk (due to low price and no where to really go, unless you think the countries are going to break up) and long term will net good returns on invested monies. However, it may be a long time.

I dont get the "stockpicking" tussle, the only thing about his purchase that makes it not totally amazing is the principal, 2.5x times original investment is great in 4 years no matter where its at, index , real estate or otherwise. Only the principal determines if youre intellectually satisfied or set for life. You dont even have to inherently smart to do well, just think this iphone is cool and want to buy in at 5$/share, bam, youre done no work necessary. The first part about investing we should learn is to lose as little money as possible, this just digs a hole thats awful hard to get out of.

Indexing is great, but after 10-13 stocks that arent super correlated you basically have an index. Anything over 20 and it will behave similar to the s/p all else being equal. They dont even all have to do well, only a couple have to do so while a couple can fail and the rest just be mediocre. Thats investing, even a broken clock is right twice a day.

Heck, you can easily outperform the market using a basic paired switch momentum style between only two mutual funds/etfs, etfs are better for logistical and cost reasons. Even Fama knows this, and calls it...the "anomaly". This takes no more than 30s a month and you dont have to know whats in the funds, their earnings, or really anything other than whats the buy that month and you will trounce "the market", and with less volatility and maximum draw down to boot. Its not as satisfying as winning because youre brilliant, but the money spends pretty much the same.

 

[cokebottle]

Mark Cuban said diversification is for idiots

 

[PL198]

Mark Cuban said diversification is for idiots

I have a theory about why a guy like Cuban would think that way. Curious to hear what some of the other regulars say first

 

[ThoracicGuy]

I have a theory about why a guy like Cuban would think that way. Curious to hear what some of the other regulars say first

He seems to promote a time the market strategy. Sure, if you can accurately do that, you can do well. Most people can't. He talks about diversification in regards to buying different stocks. I think of diversification as buying a Total Market Mutual Fund. The long term outlook for holding Total US Stock, Total International, and Total Bonds as a 3-fund portfolio will do better on average than the day traders and market timers.

 

[Plastikos]

Stocks outperform other classes historically. However, its all about risk vs. return and how it matches your personality and tolerances of volatility. Even though stocks have traditionally outperformed a 80/20-60/40 mix of stocks/bonds has fared remarkably well in the last several decades with much less volatility. This is in no small part due to the 32 year long bull market, but its true.

Everybodys situation is different. I am accumulating but I certainly do not want to be risking losing it all, so have my rules. Cuban has a lot already, and idk how he invests or care, but he doesnt need to do anything risky to grow his net worth considerably. Different personalities, stages, and amounts all change how it goes.

Ok, I watched a couple minutes. His strategy is great....if you're already rich and can afford to time the market, sure that will be a future windfall. For 99.9% of everyone else its better just to invest it when you have it, because you dont have the same luxuries of waiting like him. A small cash allocation is fine, but dont get addicted to having "dry powder" as there is an opportunity cost there as well and some studies have shown that cash holding can have a paralyzing effect.

 

[Mman]

The interesting thing about Cuban being against diversification. If you look at any list of richest people in America (or the world), it is completely dominated by people who got their wealth from 1 company or investment. Bill Gates, Carlos Slim, you name it. They got rich by not diversifying. They were all in with 1 idea or company that paid off big time. So it's not surprising they think diversification is for losers.

That said, if you looked at a list of the richest people from 20 or 40 years ago, it's crazy how few of them can hold on to that wealth. All they'd need to do is invest broadly and they'd be assured of growing that wealth forever. But since they got rich by not diversifying, very few diversify even when they are rich and many of them will lose large sums of money.


So Mark Cuban got rich by not diversifying so it isn't surprising he'd be against it. The funny thing, however, is that he is now quite diversified in his investments and income streams. He owns an NBA team, film distributors, movie theaters, tech developers, etc. His advice on investing is terrible for the average investor when he suggests sitting in all cash for long periods of time.

Mark Cuban...great businessman, poor investor.