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vanguard mutual funds vs stock picking

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  • vanguard mutual funds vs stock picking

    was just wondering as i'm working my holiday shift....investing in vanguard mutual funds vs trying my hand at individual stock picking? (i.e., loading up on apple, target, costco, etc...as well as some smaller companies)

    thoughts? what do you folks do?

  • #2
    I recommend against stock picking.  In the short term you may do well and think you're the next sage of Omaha, but in the long term you will be hard pressed to beat those who chose not to take on unecessary risk.  Do you have student loans?  What's your current portfolio and net worth look like?  I'd look at optimizing those situations before remotely entertaining individual stock selection, and even then still wouldn't suggest it.  Have you ever gone through the valuation process for a company?  If not then this is gross speculation.  If so, you realize its shortcomings and would still be wise to stay away.

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    • #3
      I would point you towards the books bogleheads guide to investing and A Random Walk Down Wallstreet.  The base premise of many index fund discussions is that the average investor fails to beat the markets and the average mutual fund only outperforms the market 25%? of the time.  If a professional mutual fund manager who spends all of his/her time studying the stocks and market trends cannot reliably beat the market, what makes you think that you can?

      If you have a strong retirement 401k, IRA and are otherwise completely on track or if you are planning to use a small amount of your overall portfolio for stock picking I think you can try it out.  The problem I encounter is if you do well, was it luck or skill? Do you commit more money the next time and at what risk? How much is my time worth that I am spending on stock picking? So far I have avoided individual stock picking after selling out all the stocks I had acquired prior to becoming an attending.  Having no stocks makes investing quite a bit less stressful for myself.

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      • #4
        Some people get lucky, but most are better off with index funds.

        From WCI: https://www.whitecoatinvestor.com/picking-individual-stocks-is-a-losers-game/

        From Mr. 1500 / Investment Zen: http://www.investmentzen.com/blog/how-i-learned-to-stop-stock-picking-and-love-index-funds/

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        • #5
          I have nothing against stock picking. I have shares of Apple, Amazon, Facebook, Berkshire Hathaway, Target, Starbucks, JNJ, Google, and a few others in my Robin Hood account (free trades). It comprises about 0.1% of my net worth and allows me to scratch that itch.

          When I was earlier in my professional and investing life, I did own a meaningful amount of individual stocks and learned the hard way that I had no business buying and selling stocks. Like many other financial mishaps early in one's career, time sweeps away the impact of the mistake.

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          • #6
            I am even older than Vagabond so I used to think I was a great stock picker.  Maybe I was or maybe it was a roaring bull market.  Now the only individual stock I own is Apple.  It is certainly possible to make lots of money investing in individual stocks but it is also very time consuming if you do it right. Now I follow the market but only for general trends.

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            • #7




              I am even older than Vagabond so I used to think I was a great stock picker.  Maybe I was or maybe it was a roaring bull market.  Now the only individual stock I own is Apple.  It is certainly possible to make lots of money investing in individual stocks but it is also very time consuming if you do it right. Now I follow the market but only for general trends.
              Click to expand...


              Agree.

              Like Hatton, I once did too.  When you pick individual stocks, you will probably have some "winners" just by dumb luck and the fact that bull markets lift most boats.  Not only is stock-picking time consuming, you also tend to get too emotionally involved because the stocks you own are "your picks".  This leads to host bad decisions that buy-and-hold index investing doesn't.

              I would strongly advise the OP against it.  If you still want to do it, limit it to a small part of your overall portfolio (max 10% IMO).

              The available evidence strongly indicates that passive investing in low-cost index funds is the superior strategy.

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              • #8




                was just wondering as i’m working my holiday shift….investing in vanguard mutual funds vs trying my hand at individual stock picking? (i.e., loading up on apple, target, costco, etc…as well as some smaller companies)

                thoughts? what do you folks do?
                Click to expand...


                I am almost 100% in low-cost index funds

                My sibling (also in medicine, zero finance background) believes strongly in individual stock picking

                We will see where we end up 30 years from now

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                • #9
                  I believe the data which says the index funds, over time, will always beat the stock pickers.


                  It comprises about 0.1% of my net worth and allows me to scratch that itch.
                  Click to expand...


                  I think it's fine to pick so long as you keep the %/$ very low. (aka you'd be okay to lose every penny of it).

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                  • #10




                    I believe the data which says the index funds, over time, will always beat the stock pickers.


                    It comprises about 0.1% of my net worth and allows me to scratch that itch. 
                    Click to expand…


                    I think it’s fine to pick so long as you keep the %/$ very low. (aka you’d be okay to lose every penny of it).
                    Click to expand...


                    Not always, but close enough to consider stock picking by the average investor highly questionable.

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                    • #11
                      The way I think of it is that with an index fund I get to buy a small piece of virtually every company on the S&P 500, Nasdaq, etc.  There's no way I'd be able to afford that kind of diversity if I were to try to pick my own stocks individually.  Someone like Warren Buffet can do that, of course and a single share of Berkshire Hathaway is a pretty good sampling of the S&P 500, but...for us average investors, index funds are hard to beat.

                      If you have an urge to pick stocks, one thing you can try is to dedicate a small amount of money towards picking individual stocks in one of your accounts.  Call it play money if you want.  I've heard of a lot of people doing this.  I have about $5,000 in my Roth that I use for that purpose.  It can satisfy that urge to actively buy and sell something without doing any real damage to your long term goals.  Since individual stock picking is so risky, I should probably use part of my taxable account for that purpose instead of my Roth now that I think about it so that I can tax loss harvest if I lose my $5,000 on something.

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                      • #12
                        Index funds only for me.  I have no patience nor the skill to even consider individual stocks.

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                        • #13




                          The way I think of it is that with an index fund I get to buy a small piece of virtually every company on the S&P 500, Nasdaq, etc.  There’s no way I’d be able to afford that kind of diversity if I were to try to pick my own stocks individually.  Someone like Warren Buffet can do that, of course and a single share of Berkshire Hathaway is a pretty good sampling of the S&P 500, but…for us average investors, index funds are hard to beat.

                          If you have an urge to pick stocks, one thing you can try is to dedicate a small amount of money towards picking individual stocks in one of your accounts.  Call it play money if you want.  I’ve heard of a lot of people doing this.  I have about $5,000 in my Roth that I use for that purpose.  It can satisfy that urge to actively buy and sell something without doing any real damage to your long term goals.  Since individual stock picking is so risky, I should probably use part of my taxable account for that purpose instead of my Roth now that I think about it so that I can tax loss harvest if I lose my $5,000 on something.
                          Click to expand...


                          Agreed.  Wouldn't do that in a Roth.

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                          • #14
                            Thanks everyone for the input, great insights.  I do appreciate it.  I think I'll stick with index funds and maybe dabble just a little into some stocks, but absolutely nothing crazy.

                            Im 40, have a net worth of just about 1.05M.  all student loans paid off.  only a mortgage as outstanding debt.  2 old paid off cars. 2 young children and my health!

                             

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                            • #15
                              Why don't you put all your money in index funds right now? Then pick all the stocks you were going to pick and keep strict track of your progress in a mock portfolio.

                              Then pick all the stocks you were going to pick and keep strict track of your progress in a mock portfolio. Make sure to calculate the internal rate of return. Then see where you are in five years in the mock portfolio. If you aren't ahead of the total market you know you made the right decision.

                              If your mock portfolio is ahead, start a newsletter and show everyone what a great stock picker you are. Then sell subscriptions to the newsletter and make sure to state past performance is not a guarantee of future returns.  

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