thoughts on direct stock purchase?

[donkeykong1]

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Has anyone had experience with putting some money in direct stocks bypassing brokers, fees etc.? Im thinking about putting some money around 1k into a company. Totally new to this game

 

[Cooperd0g]

Sure, my thoughts are: don't. A solid financial plan should never have stock in a single company. The best way to win in the long term is to invest in low cost broad index funds from a company like Vanguard.

 

[donkeykong1]

Sure, my thoughts are: don't. A solid financial plan should never have stock in a single company. The best way to win in the long term is to invest in low cost broad index funds from a company like Vanguard.

yeah i was looking at vanguard mutual funds. again i only want to invest 1k and maybe sell in 5 yrs. what do u think of vanguard's STAR fund its moderate risk, moderate reward.

 

[Cooperd0g]

I don't like the STAR fund as it is not a true index fund.

If you really want your money back in 5 years then you probably aren't comfortable with any real risk so just put it in a 5 year CD. If you are bent on a mutual fund then look at the LifeStrategy conservative or moderate growth fund.

But in reality you would be better off learning the fundamentals of successful personal finance and long term investing before doing anything with that $1000. Start here:

https://www.bogleheads.org/wiki/Getting_started

 

[James Martin]

If you are making any financial investments try to invest in things that have intangible benefits. Rather than trying to 100% maximize your financial gain (you'll have plenty of time for that), focus instead on the overall benefit of your investment.

 

[Cooperd0g]

I'm curious what you consider to be an intangible benefit of an investment.

 

[sazerac]

Probably a trip to Thailand or something. Those memories last forever.

 

[QofQuimica]

The only direct investment in a company I'd want to make is if I were starting my own business. Even that is obviously high risk, high reward, but at least I'd know the company was being managed by someone whose judgment I trusted. :-/

If you're "new to this game," that's all the more reason not to try to be too cute and clever with your investments. You aren't going to think of anything that lots of other people who are a lot smarter and more knowledgeable than you are haven't already thought of and tried. For a for a <5 year time frame, you shouldn't be investing that money anyway. Like cooper suggested, put the money in a 5-year CD with minimal early withdrawal penalties, and call it a day.

 

[The White Coat Investor]

$1K gets you into a target retirement fund at Vanguard. I prefer that to STAR.

For some reason I really hate when people use the word "game" and "play" with regards to investing. I dunno, it just seems like serious business to me. When the market goes down, I lose a lot of very real money that I worked very hard to earn and that I may have preferred to spend rather than save.

 

[Plastikos]

You only lose the money if you take it out, otherwise you're just reinvesting at lower prices. People need to teach themselves how to think about the market properly, and that of course depends on your age, but if you are hurt by market fluctuations at that time you are improperly allocated. The truth is a down turn in the market is where wealth is created, and they should be cheered and prayed for (I know I do) if you are 10+ years out from retirement. They are a requisite of outsized gains. Again, allocation will save you from any wild shift near retirement, other wise you should look forward to it.

There is not one best way to "win". There are a multitude of ways that have ended up in the same result. That said, unless that single company is Berkshire Hathaway A shares (obviously it cannot be) than its not a prudent investment, doubly so if less than five years horizon. Thats not investing its speculating.

 

[DepressedEngineer]

I am an accounting junior. I would not recommend it at all... it is all rigged.....

 

[Mman]

There is not one best way to "win". There are a multitude of ways that have ended up in the same result. That said, unless that single company is Berkshire Hathaway A shares (obviously it cannot be) than its not a prudent investment, doubly so if less than five years horizon. Thats not investing its speculating.

An investment in a single company can be a great investment (and not speculation). It just shouldn't be your only investment. You need diversification to offset the risks. Benjamin Graham himself suggested a diversified "basket" of 20 or 30 companies could provide a great protection against any 1 or 2 purchases being drastically incorrect.

That said you shouldn't even begin to think about buying a stock unless you know a lot about the company. Read their annual report. Read their last several annual reports. Learn how to analyze their income statements and balance sheets over time. Compare them to others in their industry, etc. Make sure the purchase price is with an adequate margin of safety.

 

[ThoracicGuy]

An investment in a single company can be a great investment (and not speculation). It just shouldn't be your only investment. You need diversification to offset the risks. Benjamin Graham himself suggested a diversified "basket" of 20 or 30 companies could provide a great protection against any 1 or 2 purchases being drastically incorrect.

That said you shouldn't even begin to think about buying a stock unless you know a lot about the company. Read their annual report. Read their last several annual reports. Learn how to analyze their income statements and balance sheets over time. Compare them to others in their industry, etc. Make sure the purchase price is with an adequate margin of safety.

Or just buy a total market index fund and own them all without the risks of one company turning into Enron.

 

[Mman]

Or just buy a total market index fund and own them all without the risks of one company turning into Enron.

You can do that. It's also possible to do better than that. Should the average investor just buy a low cost index fund? Of course. Does that mean everybody should? Of course not. It's possible to be educated about financials and make educated decisions and actually do better than the market. It isn't easy, but that doesn't mean it can't be done in a profitable fashion over the long haul. Only a fool would've been buying Enron prior to it's collapse. Their debt load was overwhelming compared to their cash flow and they got around it by issuing even more debt.

Any 1 company can go in the tank tomorrow. But prudent investors can pretty easily determine companies that are quite unlikely to do that. I'm pretty sure Berkshire Hathaway will still be cranking out cash 40 years from now. Same thing for Disney. Same thing for Microsoft. Same thing for Exxon or Altria or Diageo or Nestle. The key is to find companies likely to be profitable long term and buy them when their price is temporarily depressed.

 

[ThoracicGuy]

You can do that. It's also possible to do better than that. Should the average investor just buy a low cost index fund? Of course. Does that mean everybody should? Of course not. It's possible to be educated about financials and make educated decisions and actually do better than the market. It isn't easy, but that doesn't mean it can't be done in a profitable fashion over the long haul. Only a fool would've been buying Enron prior to it's collapse. Their debt load was overwhelming compared to their cash flow and they got around it by issuing even more debt.

Any 1 company can go in the tank tomorrow. But prudent investors can pretty easily determine companies that are quite unlikely to do that. I'm pretty sure Berkshire Hathaway will still be cranking out cash 40 years from now. Same thing for Disney. Same thing for Microsoft. Same thing for Exxon or Altria or Diageo or Nestle. The key is to find companies likely to be profitable long term and buy them when their price is temporarily depressed.

What makes you think that you can beat the professionals it there who do this for a living? Their funds don't beat the index funds in the long term. It's your money, do what you want, but my strategy will win the long term game.

 

[Mman]

What makes you think that you can beat the professionals it there who do this for a living? Their funds don't beat the index funds in the long term. It's your money, do what you want, but my strategy will win the long term game.

How do you know it will win the game? Professionals managing mutual funds can't beat their index because of their size. They have to own the same stocks as everybody else. They can't load up on cheap ones and ignore expensive ones. By the very nature of what they do, the experts can't beat the market because they are the market.

Do you think it's a coincidence that Warren Buffett and Charlie Munger and Walter Schloss all made great returns following the same ideas? How did Warren Buffett grow Berkshire Hathaway's market value by 1.8 million percent over 50 years when the overall market only increased by 11,000%?

Is it luck? Or does the market occasionally misprice a security that an intelligent person can take advantage of?

I'm completely agreeing that the average investor should just take a mutual fund with low expense ratio and run. But it's naive to think that is the optimal strategy for everybody. I choose to individually invest approximately 20% of my savings on an annual basis. So far, so good. I'm up on the S&P since I started in 2007 and I look forward to another downturn to bring me even more great chances to buy deeply discounted companies. I've picked some losers, but I've also picked massive winners. Will it continue? I can't be certain. But history suggests a similar approach in the future is likely to be profitable as well. The downside of such an endeavor is that it does require a few things that not everybody has: patience to invest for the long term, time to research things thoroughly, and the knowledge on how to interpret financial information. The average investor gets happy when the stock market goes up, but for anybody that will be a net purchaser of stocks (or mutual funds) in the future, it's a bad thing since they will have to pay higher prices for their purchases. Buy low, sell high, is easy for people to say but very difficult for the vast majority to adhere to.

When the market crashes down, all kinds of people panic and sell when in reality they should be loading up and buying even more. Not easy to do, but that's when the best investments are made.

 

[QofQuimica]

Ah, the perennial value investing versus index investing debate.

 

[Mman]

Ah, the perennial value investing versus index investing debate.

No offense, but there isn't really a debate. It's really only an internal debate you should have with yourself over how much time and work you would like to put into your investments and an acknowledgement of what kind of temperament you have. The reality is that a good diversified portfolio is what everyone should aim for, it's just a question of how you go about structuring it.

The vast majority of people should just dollar cost average into low cost index funds at an appropriate split between stocks and bonds and call it a day. That doesn't mean it's the best possible thing you can do, just that's it's the easiest and least likely to allow mistakes that can cripple your portfolio.

 

[PL198]

How do you know it will win the game? Professionals managing mutual funds can't beat their index because of their size. They have to own the same stocks as everybody else. They can't load up on cheap ones and ignore expensive ones. By the very nature of what they do, the experts can't beat the market because they are the market.

Do you think it's a coincidence that Warren Buffett and Charlie Munger and Walter Schloss all made great returns following the same ideas? How did Warren Buffett grow Berkshire Hathaway's market value by 1.8 million percent over 50 years when the overall market only increased by 11,000%?

Is it luck? Or does the market occasionally misprice a security that an intelligent person can take advantage of?

I'm completely agreeing that the average investor should just take a mutual fund with low expense ratio and run. But it's naive to think that is the optimal strategy for everybody. I choose to individually invest approximately 20% of my savings on an annual basis. So far, so good. I'm up on the S&P since I started in 2007 and I look forward to another downturn to bring me even more great chances to buy deeply discounted companies. I've picked some losers, but I've also picked massive winners. Will it continue? I can't be certain. But history suggests a similar approach in the future is likely to be profitable as well. The downside of such an endeavor is that it does require a few things that not everybody has: patience to invest for the long term, time to research things thoroughly, and the knowledge on how to interpret financial information. The average investor gets happy when the stock market goes up, but for anybody that will be a net purchaser of stocks (or mutual funds) in the future, it's a bad thing since they will have to pay higher prices for their purchases. Buy low, sell high, is easy for people to say but very difficult for the vast majority to adhere to.

When the market crashes down, all kinds of people panic and sell when in reality they should be loading up and buying even more. Not easy to do, but that's when the best investments are made.

except for every warren buffet there are MILLIONS of people where their investments performed below average.

I especially don't get this from physicians. So most physicians work a good amount of hours and work hard at what they do. They've also trained for a long time in that field to get to that point. Would you play someone 1 on 1 in basketball for any significant stakes that practiced 60 hours a week and had been doing so for a living since they got out of high school? I sure wouldn't, and I have no idea why people do the equivalent in the financial sector. You're in the office all day, meanwhile the guy you're competing with has 100 analysts giving him a trillion different metrics and you think you're going to beat him? That's the definition of naive in my opinion. I don't think I'd beat Steph Curry 1 on 1, just like I don't think I'd beat his equivalent in a manager.

Research things thoroughly? I don't know if you understand how real-time stats work, but no single person has the time or resources to " research things thoroughly" compared to what the managers have. Any data you're looking at in real time, has been factored into their decisions 10 minutes ago, but somehow you think you're going to get a leg up on them?

 

[sazerac]

The difference between me and the high powered analyst is that I have less turnover, and lower fees (through vanguard index funds). Those are the two things that will sink the return of any professional money manager, every time.

I'm sure the professional money managers and their teams of analysts make tons of money for themselves. I'd rather spend my investment income on something else.

 

[Mman]

except for every warren buffet there are MILLIONS of people where their investments performed below average.

I especially don't get this from physicians. So most physicians work a good amount of hours and work hard at what they do. They've also trained for a long time in that field to get to that point. Would you play someone 1 on 1 in basketball for any significant stakes that practiced 60 hours a week and had been doing so for a living since they got out of high school? I sure wouldn't, and I have no idea why people do the equivalent in the financial sector. You're in the office all day, meanwhile the guy you're competing with has 100 analysts giving him a trillion different metrics and you think you're going to beat him? That's the definition of naive in my opinion. I don't think I'd beat Steph Curry 1 on 1, just like I don't think I'd beat his equivalent in a manager.

Research things thoroughly? I don't know if you understand how real-time stats work, but no single person has the time or resources to " research things thoroughly" compared to what the managers have. Any data you're looking at in real time, has been factored into their decisions 10 minutes ago, but somehow you think you're going to get a leg up on them?

I think your basic assumption is where you are wrong. It isn't a competition and nobody should be acting on real time instant information to make a decision regarding their retirement savings. You seem to be describing some expert day trader flipping through trillions of data points to make a few bucks today.

I'm talking about reading annual and quarterly financial statements. The value of a business doesn't change in 1 day or 1 hour or 1 second, yet the market valuation of it changes instantly during all trading hours. But you shouldn't be trying to time that. But if you can identify a business that is currently selling for 30% below what you believe it's value to be (based on research and comparables, etc), it doesn't matter if you buy it today or tomorrow or in a month unless the stock price drastically changes. I mean if I think it's worth $100 today and likely to grow at 10% per year, does it matter if I pay $65 or $75 for it? The margin of safety is already there.

That's the thing about learning to understand financial statements and analyze returns on capital and growth rates of dividends and what not, it isn't a full time job. You don't have to research every company on the planet. You can pick and choose where to focus your energy. Nobody forces you to buy or sell anything. This hypothetical expert fund manager you describe is forced to make transactions all the time. He's also hemmed in by size to own the same stocks as everybody else. You on the other hand as an individual investor can go weeks, months, or years without finding a suitable purchase to make. Or if the market is right you could be splurging and buying lots of things.

The downside of mutual funds, even cheap well managed ones, is that people put money into them and take money out at the exact wrong times. If the market goes up 20% in 2015, they will have even more money they have to invest that by definition will be into more expensive (worse) investments. If the market drops 30% in 2015, people will be pulling money out and the fund will have to sell investments at the exact wrong time and they won't be able to buy cheaper (better) investments. But as an individual, you don't have to panic. If the market drops, you don't have to sell your securities like your mutual fund would. You can just hold on to them and ignore the temporary downturn. You can even increase your investing if you find attractive opportunities.

 

[Mman]

The difference between me and the high powered analyst is that I have less turnover, and lower fees (through vanguard index funds). Those are the two things that will sink the return of any professional money manager, every time.

I'm sure the professional money managers and their teams of analysts make tons of money for themselves. I'd rather spend my investment income on something else.

Active managers do a great job at generating salary for themselves.

 

[QofQuimica]

No offense, but there isn't really a debate. It's really only an internal debate you should have with yourself over how much time and work you would like to put into your investments and an acknowledgement of what kind of temperament you have. The reality is that a good diversified portfolio is what everyone should aim for, it's just a question of how you go about structuring it.

The vast majority of people should just dollar cost average into low cost index funds at an appropriate split between stocks and bonds and call it a day. That doesn't mean it's the best possible thing you can do, just that's it's the easiest and least likely to allow mistakes that can cripple your portfolio.

I do both. 🙂

 

[Plastikos]

Its actually a lot simpler than people make it out to be. Yes, you have to do the work yourself (even though the internet has made it dead simple) and it takes a certain personality to enjoy it, but many doctors just dont care. The facts are, that very simple value style investing over long term horizons simply stomps the bejezus out of the s/p. Its not even fancy, in fact its plain boring. Once you have 7-10 individual stocks that are diversified by sector and lacking as much correlation risk as possible, your portfolio will perform like an index fund for the most part, but hopefully better. I hold more than that, but have a current cap of 30 long term holdings, anything more is dilution at this time. No holding costs, no transactions fees or random cap gains, etc...No dumping into the Etsy IPO due to fund rules, etc.....

People then turn around and preach index funds without really understanding that due to the market capitalizations of the groups in that index you are woefully less diversified than you perceive yourself to be. Who reads how their funds actually allocate their money? Right, almost no one. I dont recall the exact percentages off the top of my head but suffice it to say the majority of your money in an sp500 index is in the biggest 25 companies. Not much different than what I do really, except I get to choose them myself, skipping any sector I find generally unfit for long term holding (financials for example). Indexing has to be this way or the smallest company in the sp500 would be drowned out by the ginormous amount of cash in these kinds of funds.

Yes its great for the majority of people who want nothing better than to put money away and have a great chance of doing well in the long run. That does not mean people dont beat the market, obviously they do, the index gives you guaranteed average returns. There are simple ways to slightly improve upon that however, and even 0.5% of a difference (either in commision, loads, fees, ER, etc....) will add up to an astounding difference in return. I hope everyone indexes to the point it screws up the market and makes inefficiencies pop up left and right.

 

[PL198]

that will never happen because people will always be greedy thinking they have the magic formula. only like 10 % of the market has to be actively trading for indexing to remain viable.

trying to beat the market is like a random hobo walking in off the street and thinking they can beat you clinically.

 

[Mman]

that will never happen because people will always be greedy thinking they have the magic formula. only like 10 % of the market has to be actively trading for indexing to remain viable.

trying to beat the market is like a random hobo walking in off the street and thinking they can beat you clinically.

No. Because the market isn't an expert. The market is an average. The problem is that to beat it you just have to be an investor, not a speculator or trader. You have to be willing to see beyond a stock price as a measure of value. It isn't. If your house was a stock and somebody came up to you and offered to buy it for a different price every day, would you feel your house was more valuable on the day somebody offered more than the day before when they offered less? Of course not. It's just an offer. Stock prices are offers. You can take or leave them at your leisure and when they give you a big advantage, you can take it.

 

[Plastikos]

that will never happen because people will always be greedy thinking they have the magic formula. only like 10 % of the market has to be actively trading for indexing to remain viable.

trying to beat the market is like a random hobo walking in off the street and thinking they can beat you clinically.

Actually, if you view correlation graphs from the last few decades, it is already happening. More and more people are in indexes, and its more correlated than ever. Its not as if by research and decision making we mean watch the yahoo finance ticker and buy at a random number, thats a good way to lose money. You do the work long before, you know the intrinsic value of the companies your interested in, keep up with them and when they are near your personally defined value zone/margin of safety you cash in. You already know far in advance what your willing to pay, then you just wait for it.

There are lots of ways to beat the market without doing anything in particular, in fact, doing less overall is a great way. I like the quote about a portfolio being like a bar of soap, the more you touch it the smaller it gets.

You have a view of the market that is 1 part scorned lover and the other naive. There are lots of reasons people sell or buy, even at the worst moments. Large institutional funds can do this 2/2 rules (fairly famous example regarding Walmart), people due to retiring or emergencies, margin calls, different use for the capital (Buffet and Exxon recently) etc....Their misfortune is your opportunity. People seem to be consciously ignoring the fact that every trade is two sided, so at the depths of the 29 crash and in March 2009 when the panic was at its absolute worst, those people selling in fear were on the opposite side of a buyer with such excitement they probably couldnt sleep for a week. Thats where wealth is created. Do some homework, its seriously one of the most important things you can learn. You should be able to earn far more from your money than in money earned in your lifetime.

I try to buy quality companies that have a history of weathering storms, a good dividend policy (most effective with a stock decline), and large barriers to entry, etc...I try to have some cash available so that if I were to be so lucky as to be around for a good correction or irrational hammering of a good company, I can reap the rewards. None of this is new or secret, but a time tested strategy of the obvious that performs excellently.

 

[PL198]

No. Because the market isn't an expert. The market is an average. The problem is that to beat it you just have to be an investor, not a speculator or trader. You have to be willing to see beyond a stock price as a measure of value. It isn't. If your house was a stock and somebody came up to you and offered to buy it for a different price every day, would you feel your house was more valuable on the day somebody offered more than the day before when they offered less? Of course not. It's just an offer. Stock prices are offers. You can take or leave them at your leisure and when they give you a big advantage, you can take it.

yeah so you know some magic secret that every active investor doesn't know. you're a doctor, not some MIT kid who can come up with some stupidly complex algorithm to determine value that no one else can see. if seeing when you're at a big advantage was so easy, then the active guys would destroy you because they have 1000000000x the resources to commit to finding the same things you're looking for.

I feel like physicians are especially vulnerable to this kind of thinking because they get overconfident about their knowledge in other areas due to their immense clinical knowledge.

ps your comment about the active manager requiring turnover is completely wrong. I know some people that work for active management companies and they average between 2-5 trades a year for last 10+ years.

 

[Mman]

yeah so you know some magic secret that every active investor doesn't know. you're a doctor, not some MIT kid who can come up with some stupidly complex algorithm to determine value that no one else can see. if seeing when you're at a big advantage was so easy, then the active guys would destroy you because they have 1000000000x the resources to commit to finding the same things you're looking for.

I feel like physicians are especially vulnerable to this kind of thinking because they get overconfident about their knowledge in other areas due to their immense clinical knowledge.

ps your comment about the active manager requiring turnover is completely wrong. I know some people that work for active management companies and they average between 2-5 trades a year for last 10+ years.

you literally have no idea what you are talking about. Not in a hyperbolic way, but you actually have no idea.

Magic secrets? Are you nuts? It's not magic. It's not "stupidly complex algorithms". It's simple. Is there something complicated about buying a stock when it's value is less than the cash on hand (minus all debts owed) by the company? It's like buying a wallet with $100 in it for $50. Things like that happen in the stock market. It isn't common, but it doesn't have to be. I'm not trying to be correct on 5000 different companies, just picking and choosing the drastically mispriced ones.

You also seem to have no idea what a mutual fund is and how it functions and what active management means. It means fees. It means the investor spends something like 1% or 2% of their cash per year for the honor of having someone else invest it for them. Sounds great.

You really need to read some good books. I recommend starting with The Intelligent Investor by Benjamin Graham. It will blow your mind. He likes to use the analogy of buying a dollar for 50 cents. If you keep doing it, over time you will have a lot of dollars. But he also points out that many people just don't understand and you can tell them over and over and over and they will just never get it.

Is it a coincidence that all of Ben Graham's closest pupils have made a killing in investments the last 50 years? Was it all luck? They all had slightly different variations, but the same basics. They worked in different areas and sectors, yet consistently outperformed the market. It still works today. Why? Because it's against human nature. People are stupid animals and make dumb decisions like buying lottery tickets.

By the very definition, "active" guys can't destroy value investing long term. It's too slow and boring and they can't do it because nobody would be willing to pay for it. Active managers are in the market of generating business, not generating superior 50 year returns.

 

[PL198]

you literally have no idea what you are talking about. Not in a hyperbolic way, but you actually have no idea.

Magic secrets? Are you nuts? It's not magic. It's not "stupidly complex algorithms". It's simple. Is there something complicated about buying a stock when it's value is less than the cash on hand (minus all debts owed) by the company? It's like buying a wallet with $100 in it for $50. Things like that happen in the stock market. It isn't common, but it doesn't have to be. I'm not trying to be correct on 5000 different companies, just picking and choosing the drastically mispriced ones.

You also seem to have no idea what a mutual fund is and how it functions and what active management means. It means fees. It means the investor spends something like 1% or 2% of their cash per year for the honor of having someone else invest it for them. Sounds great.

You really need to read some good books. I recommend starting with The Intelligent Investor by Benjamin Graham. It will blow your mind. He likes to use the analogy of buying a dollar for 50 cents. If you keep doing it, over time you will have a lot of dollars. But he also points out that many people just don't understand and you can tell them over and over and over and they will just never get it.

Is it a coincidence that all of Ben Graham's closest pupils have made a killing in investments the last 50 years? Was it all luck? They all had slightly different variations, but the same basics. They worked in different areas and sectors, yet consistently outperformed the market. It still works today. Why? Because it's against human nature. People are stupid animals and make dumb decisions like buying lottery tickets.

By the very definition, "active" guys can't destroy value investing long term. It's too slow and boring and they can't do it because nobody would be willing to pay for it. Active managers are in the market of generating business, not generating superior 50 year returns.

this sounds so much like a snake oil ad its scary.

 

[Plastikos]

yeah so you know some magic secret that every active investor doesn't know. you're a doctor, not some MIT kid who can come up with some stupidly complex algorithm to determine value that no one else can see. if seeing when you're at a big advantage was so easy, then the active guys would destroy you because they have 1000000000x the resources to commit to finding the same things you're looking for.

I feel like physicians are especially vulnerable to this kind of thinking because they get overconfident about their knowledge in other areas due to their immense clinical knowledge.

ps your comment about the active manager requiring turnover is completely wrong. I know some people that work for active management companies and they average between 2-5 trades a year for last 10+ years.

2-5 trades per year would be an odd management style as thats how managers generate their fees. Investing is actually quite easy on the surface. Do not overpay for your securities. The price you pay is one of the most important determinants of your likelihood of success, the other depends on how long you hold that security, where the underlying earnings power of the company becomes paramount. For example, if all you did the last 30 years was buy the cheapest decile of stocks in the s&p, and rebalance every year you would have absolutely crushed the market without any "thinking or complexity" just a dead simple screen. Yes, it would have been volatile and for years you may have underperformed, but thats true of any investment strategy.

I dont care what you think about investing or my personal style, it doesnt require your belief in order to work. You have a lot of "feelings" about the market, but lack any actual knowledge. The reasons doctors suck at investing is because of attitudes like yours that keeps them from educating themselves and makes them targets of unscrupulous brokers or insurance salesman.

For some reason the majority of people have trouble seeing the market for what it is. If you thought of it as a store, and stocks as say shirts you would have something akin to....seeing a shirt you know is good quality, fits you just right, and know you want it, but its 50 bucks and you have 44, no go. You spend weeks longing after it, then suddenly there is a 50% off sale and its 25 bucks! Awesome! Except that now that its cheap you dont want it as much, so you wait. Lo and behold, 2 weeks later its 75 bucks, and you want it so badly you borrow money from your parents to get it, only to have it go on sale for 10 bucks the next day. This does not happen in any other part of life but it happens every day in the market.

Start learning how to think in general first. Logically, rationally and aware of your personal and natural biases that are always trying to get you to make a poor decision. This is beneficial to your whole life and not just investing.

 

[Mman]

this sounds so much like a snake oil ad its scary.

A snake oil ad that suggests you should be smart with your money and invest it wisely and only dare to trade in securities if you understand how to analyze financial statements? A snake oil ad that is more concerned with deciding what the chances are that your investment is wrong and loses everything?

Snake oil would be suggesting that investing is easy. It's not. It's a lot of work. I don't find it to be hard because I find it fun. It's interesting to me read income statements and balance sheets and read about corporate debt loads and free cash flow. It isn't hard, though it might be tedious if you don't like it. But I like numbers.


It's the anti - "get rich quick" scheme. It's slow and boring and unsexy and it means not caring what the stock market thinks about your holdings tomorrow, next week, or next year. It's think that you shouldn't buy a stock if you wouldn't be comfortable being stuck with it for 5 years and not knowing what the ticker price was for it at any point during that time.

An intelligently diversified portfolio of value based purchases has even less fees associated with it than a low cost mutual fund.


And P.S. If I'm a snake oil salesman, what am I selling? A book first published in 1949 and last revised in 1972 by a man that has been dead for 41 years. You can buy it new for $13 on Amazon. It pretty thoroughly proves the idea that the market does not rationally price all stocks all the time and that the disparity provides room for you to invest intelligently.

 

[James Martin]

You can also sign up to DRIP funds that are not individual stocks depending on the fund. My ETFs are set up to reinvest as is my index fund. This provides diversification and means I don’t have to think that hard while matching the market, which is always a plus since I’m not into gambling and I’m in the market for the long-haul. (For my father, stocks are a hobby. But, on average, people who play with individual stocks don’t even match the market.)

 

[ThoracicGuy]

You also seem to have no idea what a mutual fund is and how it functions and what active management means. It means fees. It means the investor spends something like 1% or 2% of their cash per year for the honor of having someone else invest it for them. Sounds great.

I trust that you realize there are some great, low-cost, passively managed mutual funds out there that have fees of less than 0.1%. Except in my 403b where I'm limited to my employer picked choices, I don't have any funds less than 0.3% and most are less than that.

 

[Mman]

I trust that you realize there are some great, low-cost, passively managed mutual funds out there that have fees of less than 0.1%. Except in my 403b where I'm limited to my employer picked choices, I don't have any funds less than 0.3% and most are less than that.

I trust you realize I was responding to a post in praise of actively managed funds. I'm well aware of what low-cost passively managed funds are. My entire 401k plus Roth IRA is in a combination of funds with fees averaging about 0.14%. As I've stated before, most investors would do well to place all their retirement assets in low cost mutual funds. Actively managed funds are TERRIBLE ideas, though.

 

[PL198]

I trust you realize I was responding to a post in praise of actively managed funds. I'm well aware of what low-cost passively managed funds are. My entire 401k is in a combination of funds with fees averaging about 0.14%. As I've stated before, most investors would do well to place all their retirement assets in low cost mutual funds. Actively managed funds are TERRIBLE ideas, though.

nothing in my post was praising active funds.

 

[Mman]

nothing in my post was praising active funds.

I guess you fooled me with the phrases "active guys" "active managers", and "active management companies". I apologize for misunderstanding your use of the word active.

 

[PL198]

huh? I can talk about them without praising them?

 

[ThoracicGuy]

I trust you realize I was responding to a post in praise of actively managed funds. I'm well aware of what low-cost passively managed funds are. My entire 401k plus Roth IRA is in a combination of funds with fees averaging about 0.14%. As I've stated before, most investors would do well to place all their retirement assets in low cost mutual funds. Actively managed funds are TERRIBLE ideas, though.

I agree. I am constantly complaining to my employer about the 403b options. The cheapest ER is 0.5% for a S&P 500 index fund. It should be 1/10th of that cost...

 

[The White Coat Investor]

Man its good to see docs having this debate. 5 years ago doctors couldn't have this intelligent of a financial conversation. I hope I'm part of that.

Is it possible to beat the market? Sure. But I'm not going to bet on my ability to do so. Market returns are all I need to meet my goals, and the only financial statement I have to read is my own.

 

[Mman]

Man its good to see docs having this debate. 5 years ago doctors couldn't have this intelligent of a financial conversation. I hope I'm part of that.

Is it possible to beat the market? Sure. But I'm not going to bet on my ability to do so. Market returns are all I need to meet my goals, and the only financial statement I have to read is my own.

And that is a great way for most physicians to invest because they are busy with jobs and lives. I just like to call BS when people suggest it is necessarily the best option and only good way to do it. I max out 401K, roth IRA, and defined benefit plan and use funds that have bare minimum expense. But that still leaves me with another 100K a year to save and I academically enjoy beating the market long term with value based investing principles. It takes time, effort, and patience, but I believe it's a fundamentally better option and for me that is rewarding and the risk is minimal if I'm properly diversified.

 

[Mman]

huh? I can talk about them without praising them?

I misread you again, "the active guys would destroy you because they have 1000000000x the resources to commit to finding the same things you're looking for". My mistake. I thought you were praising their abilities.

The problem with actively managed funds is that they don't invest for the long term. They can't. They need good returns in comparison to the market every year or they lose business or go out of business. Proper long term investing wouldn't really care if you were bad for a year or two as long as the 30 year horizon looked rosy. That's the difference. They make short term decisions that can be opposed to correct long term decisions. And even if they make lots of correct decisions, charging somebody 1-2% per year kills the returns long term.

 

[PL198]

I'll bite on the value investing and check out some of that guys website when I get the chance

 

[The White Coat Investor]

And that is a great way for most physicians to invest because they are busy with jobs and lives. I just like to call BS when people suggest it is necessarily the best option and only good way to do it. I max out 401K, roth IRA, and defined benefit plan and use funds that have bare minimum expense. But that still leaves me with another 100K a year to save and I academically enjoy beating the market long term with value based investing principles. It takes time, effort, and patience, but I believe it's a fundamentally better option and for me that is rewarding and the risk is minimal if I'm properly diversified.

I run into lots of people who like doing this sort of thing. My advice is to carefully calculate your returns, including the value of your time doing it, your expenses, your taxes etc and then decide after a few years if it is really a good idea. If so, great. If not, you can always go back to index funds. What I usually find is that stock pickers don't even know how to calculate their returns accurately, which tells me a lot. I'd be more than willing to spend time picking stocks if I was convinced it was a good use of my time and effort. But I'm not. Your mileage may vary, but at least look and see what your mileage is the next time you fill up!

 

[Mman]

I run into lots of people who like doing this sort of thing. My advice is to carefully calculate your returns, including the value of your time doing it, your expenses, your taxes etc and then decide after a few years if it is really a good idea. If so, great. If not, you can always go back to index funds. What I usually find is that stock pickers don't even know how to calculate their returns accurately, which tells me a lot. I'd be more than willing to spend time picking stocks if I was convinced it was a good use of my time and effort. But I'm not. Your mileage may vary, but at least look and see what your mileage is the next time you fill up!

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.

 

[Plastikos]

I run into lots of people who like doing this sort of thing. My advice is to carefully calculate your returns, including the value of your time doing it, your expenses, your taxes etc and then decide after a few years if it is really a good idea. If so, great. If not, you can always go back to index funds. What I usually find is that stock pickers don't even know how to calculate their returns accurately, which tells me a lot. I'd be more than willing to spend time picking stocks if I was convinced it was a good use of my time and effort. But I'm not. Your mileage may vary, but at least look and see what your mileage is the next time you fill up!

Sadly, I really enjoy the effort side of things, its fascinating and intellectually stimulating. Were this not the case, that would make more sense for sure. I think its the typical self selection bias we usually argue with each other about, and it really turns out to be personality differences (like how lots of RE types view the market very negatively). I dont recall the exact quote, but Benjamin Graham says something along the lines of, show me a portfolio and it will give him a picture of the owner...something along those lines.

 

[Plastikos]

I have yet to find, or create (working on a couple), an excellent spreadsheet for my personal portfolio. There are a couple of ok ones, but its a real pain to make a slick one that incorporates reinvested dividends, fractional shares, dca, etc...and so forth.

 

[ThoracicGuy]

I have yet to find, or create (working on a couple), an excellent spreadsheet for my personal portfolio. There are a couple of ok ones, but its a real pain to make a slick one that incorporates reinvested dividends, fractional shares, dca, etc...and so forth.

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.

 

[QofQuimica]

Sadly, I really enjoy the effort side of things, its fascinating and intellectually stimulating. Were this not the case, that would make more sense for sure. I think its the typical self selection bias we usually argue with each other about, and it really turns out to be personality differences (like how lots of RE types view the market very negatively). I dont recall the exact quote, but Benjamin Graham says something along the lines of, show me a portfolio and it will give him a picture of the owner...something along those lines.

This. For 90+% of my portfolio, I index. For a small amount, I tilt because it's fun to do the research and try to beat the market. If I ever manage to pick a big winner, that will just be icing on the cake.

 

[Apollyon]

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!)