Does anyone regret not buying individual stocks/staying with index

[CordMcNally]

I think this is a great post. It would be curious to me though to try to better understand everyone opinion in terms of their risk tolerance vs age vs life goals vs existing nest egg. I mean for example the OP has a nice retirement egg and is at a point in life where they could retire. Why risk it? Seems like a no brainer. But...

Take someone like me 32, first few months out of residency, making 300k, have 300k net worth. I'm a pro stock picker for sure. I've beaten the S&P since I started investing in 2012. ( Yes I have run the calculator that determines if I just bought the S&P every time I invested into my account (including dividend) vs what I have in my account now and tax loss harvesting.)

I feel like I can risk it all because I can. If I lost it all tomorrow, I would cuss, blame everyone but myself (narcistic personality and all) then I would start over, just indexing and not change anything about my day to day spending. and still end up with a comfy 5-7 million at retirement @ 60-65. But as it is. I feel like I'm fairly far ahead and can shoot for the 10-14 million retirement and/or the 5-7 million and retire by 55. Not to mention stock picking is fun. As some of the poster alluded to its pretty easy to pick the market disrupters in my opinion.

10 years ago I knew AMZN was going to replace retail. Now look there are plenty of examples of market distrupters;

Zillow - going to replace realtors.
AIRBNB, going to replace hotels,
Video games/youtubers going to replace sports athlete markets. (Shift from football/basketball to video games), buy NVIDIA, AMD, Blizzard, etc.
Economy is going to become more "gig", see ETSY of the world, so I'm betting on Square.
Disney is going to keep cruising. (25 yrs of targeting their audience who now has the money to buy all their stuff, see their moves, etc.

Also for the indexers, I can also tell you what I believe is on their way out or at the least only going to keep up with inflation and not beat the market (but is still part of the index) ..
- Newspapers,
- Big News Networks in general.
- Big retail
- Hotels
- Oil
- Super high end jewelry
-Door dash - This is going to crash so hard, terrible business model.

You're going to run into several issues that you'll need to address at some point. The first is when you end up taking a big loss. Not if, but when. If it ends up being later in your career you're going to probably be in a world of hurt. Not necessarily from an actual standpoint but more of a standpoint of where you were once at. It's like the gambler that takes a big loss and then tries to double down to win it all back at once. How you react will completely shape your future and it isn't smart to make decisions about your future when you've just lost a significant part of your worth.

The second is what is your exit plan and when. Pretty much all of the previous market disrupters that have been around for a decent amount of time have taken significant hits to their stock at one point or another. Is that when you panic and sell? Do you take a bad situation that needs time to fix and make it a worse situation?

Look, I'm only a few years older than you but you've been picking stocks in a time period that has been relatively easy to pick stocks. It's like being born in America, people just don't understand their luck. I wish you continued success but just know the road isn't as easy as it has been since 2012.

[EntrepreneurMD]

You're going to run into several issues that you'll need to address at some point. The first is when you end up taking a big loss. Not if, but when. If it ends up being later in your career you're going to probably be in a world of hurt. Not necessarily from an actual standpoint but more of a standpoint of where you were once at. It's like the gambler that takes a big loss and then tries to double down to win it all back at once. How you react will completely shape your future and it isn't smart to make decisions about your future when you've just lost a significant part of your worth.

The second is what is your exit plan and when. Pretty much all of the previous market disrupters that have been around for a decent amount of time have taken significant hits to their stock at one point or another. Is that when you panic and sell? Do you take a bad situation that needs time to fix and make it a worse situation?

Look, I'm only a few years older than you but you've been picking stocks in a time period that has been relatively easy to pick stocks. It's like being born in America, people just don't understand their luck. I wish you continued success but just know the road isn't as easy as it has been since 2012.

So if you're willing to hold on to VTSAX during a recession (and probably add to positions) why wouldn't I do that with my AAPL or UHC stock? I aske because I tend to see a big, prolonged 2008 type recession as an unusually good investment opportunity, not a threat.

[Kamban]

In fact I am dating a guy worth about 13 million who does not think he can retire. Being happy with what you have is pretty rare I think.

It may lie in why he thinks he cannot retire. If it is because he does not have enough to sustain his lifestyle that might be a spending problem. If it is because he might get bored out of his mind if he retires, that might have some validity.

Also it also depends on how the $13M is made up of. If it is from real estate or businesses that are worth the amount but are not cash flowing currently due to the COVID pandemic and he does not have 2 years of living expenses in liquidity then he might have to work in order to bring in money.

Most people on this board hold most of their net worth in stocks and bonds which can be liquidated easily. But if you hold it in real estate and businesses that not only has not produced any income this year but also required cash infusion and taking PPP loans, then one can be net worth rich but cash poor.

[sealion1]

So if you're willing to hold on to VTSAX during a recession (and probably add to positions) why wouldn't I do that with my AAPL or UHC stock? I aske because I tend to see a big, prolonged 2008 type recession as an unusually good investment opportunity, not a threat.

I would argue the exit plan is the hardest thing to time with individual stocks; irregardless of situation.

How does one know when AAPL, NVDA, FB are on their way to becoming the next blockbuster or kodak?
I invest in individual stocks and pick an exit value once I hit long term gains rates. Once the stock hits that value I sell no matter what the projected trajectory is. It's very painful however to see that stock go up after I sell by another 50% despite all the mental blocks I put up to prevent just that. It's just human nature I think, you think more about the wins you could have had rather than the losses you dodged. For whatever reason, I just don't think you get that as much with index funds.

[Hatton]

It may lie in why he thinks he cannot retire. If it is because he does not have enough to sustain his lifestyle that might be a spending problem. If it is because he might get bored out of his mind if he retires, that might have some validity.

Also it also depends on how the $13M is made up of. If it is from real estate or businesses that are worth the amount but are not cash flowing currently due to the COVID pandemic and he does not have 2 years of living expenses in liquidity then he might have to work in order to bring in money.

Most people on this board hold most of their net worth in stocks and bonds which can be liquidated easily. But if you hold it in real estate and businesses that not only has not produced any income this year but also required cash infusion and taking PPP loans, then one can be net worth rich but cash poor.

No he is not a big spender and the money is mostly liquid. It is more of a psychological thing.

[CordMcNally]

So if you're willing to hold on to VTSAX during a recession (and probably add to positions) why wouldn't I do that with my AAPL or UHC stock? I aske because I tend to see a big, prolonged 2008 type recession as an unusually good investment opportunity, not a threat.

Uh...because the chance a stock goes to zero is much, much greater than if VTSAX goes to zero. If AAPL or UHC go to zero, I bet VTSAX doesn’t. If VTSAX goes to zero then I bet so do your individual stocks.

[Tangler]

Uh...because the chance a stock goes to zero is much, much greater than if VTSAX goes to zero. If AAPL or UHC go to zero, I bet VTSAX doesn’t. If VTSAX goes to zero then I bet so do your individual stocks.

WCI calls this: “Uncompensated risk.”

[xraygoggles]

None of the rich people I know use leverage outside of real estate.

Almost all the wealthy people I know use leverage of some sort (estimated NWs between 5-50M). Small biz, private markets, public markets, real estate, you name it.

[jfoxcpacfp]

I think this is a great post. It would be curious to me though to try to better understand everyone opinion in terms of their risk tolerance vs age vs life goals vs existing nest egg. I mean for example the OP has a nice retirement egg and is at a point in life where they could retire. Why risk it? Seems like a no brainer. But...

Take someone like me 32, first few months out of residency, making 300k, have 300k net worth. I'm a pro stock picker for sure. I've beaten the S&P since I started investing in 2012. ( Yes I have run the calculator that determines if I just bought the S&P every time I invested into my account (including dividend) vs what I have in my account now and tax loss harvesting.)

I feel like I can risk it all because I can. If I lost it all tomorrow, I would cuss, blame everyone but myself (narcistic personality and all) then I would start over, just indexing and not change anything about my day to day spending. and still end up with a comfy 5-7 million at retirement @ 60-65. But as it is. I feel like I'm fairly far ahead and can shoot for the 10-14 million retirement and/or the 5-7 million and retire by 55. Not to mention stock picking is fun. As some of the poster alluded to its pretty easy to pick the market disrupters in my opinion.

10 years ago I knew AMZN was going to replace retail. Now look there are plenty of examples of market distrupters;

Zillow - going to replace realtors.
AIRBNB, going to replace hotels,
Video games/youtubers going to replace sports athlete markets. (Shift from football/basketball to video games), buy NVIDIA, AMD, Blizzard, etc.
Economy is going to become more "gig", see ETSY of the world, so I'm betting on Square.
Disney is going to keep cruising. (25 yrs of targeting their audience who now has the money to buy all their stuff, see their moves, etc.

Also for the indexers, I can also tell you what I believe is on their way out or at the least only going to keep up with inflation and not beat the market (but is still part of the index) ..
- Newspapers,
- Big News Networks in general.
- Big retail
- Hotels
- Oil
- Super high end jewelry
-Door dash - This is going to crash so hard, terrible business model.

Please define risk and what you believe is the appropriate path to minimizing it. I think we have differing viewpoints. But, then, I believe most investors’ definitions differs from mine.

[Jack_Sparrow]

Please define risk and what you believe is the appropriate path to minimizing it. I think we have differing viewpoints. But, then, I believe most investors’ definitions differs from mine.

I have a set of ground rules and trigger that prevent excessive losses. I consider the risk of individual stock picking losing out on gains you would have gotten with the index. I mean you have to give your self credit and put in the time and research, every individual stock carries its own risk factor and you do research to figure that out. Could Tesla lose 80% of its value next year... Unlikely but entirely possible.. Could Microsoft lose 80% of its value next year - nope just nope. Its laughable to me when people use the argument "well what happens when you buy a stock that goes bankrupt". Part of being a stock picker though is understanding when to get out and when to take gains. For me personally, in my previous years I had a lower risk tolerance. I almost always took gains early before the peaks and usually sold prematurely when things got ugly. For every 20% loss I might have taken, I had 2-3 stocks with a 30%-40% gain somewhere else.

Worst stock pick ever - SVXY - loss 84% in a day ~2% of my portfolio.
Best Stock pick ever - AMZN - 930% over 7 years ~10-25% of Portfolio

[Zaphod]

I know one guy that leverages to the max on his private investments. Partners on every deal with each partner picked for specific reasons. He has the cash, but really is tight on tying up the funds.
He is very willing to bankroll, but prefers to guarantee 100% of the secured debt for a much smaller cash down. Never looks at partners for cash calls. Of course his “stock” took is 10 digit hit in 2008. Never sold a thing. Just his MO.

If he has the money but can choose this route to get involved its because its the highest profit possible with the least amount of cash up front.

[Hatton]

I have a set of ground rules and trigger that prevent excessive losses. I consider the risk of individual stock picking losing out on gains you would have gotten with the index. I mean you have to give your self credit and put in the time and research, every individual stock carries its own risk factor and you do research to figure that out. Could Tesla lose 80% of its value next year... Unlikely but entirely possible.. Could Microsoft lose 80% of its value next year - nope just nope. Its laughable to me when people use the argument "well what happens when you buy a stock that goes bankrupt". Part of being a stock picker though is understanding when to get out and when to take gains. For me personally, in my previous years I had a lower risk tolerance. I almost always took gains early before the peaks and usually sold prematurely when things got ugly. For every 20% loss I might have taken, I had 2-3 stocks with a 30%-40% gain somewhere else.

Worst stock pick ever - SVXY - loss 84% in a day ~2% of my portfolio.
Best Stock pick ever - AMZN - 930% over 7 years ~10-25% of Portfolio

Bravo on the Amazon pick. Nothing wrong with picking a great stock as long as you can stomach the drawdowns that happen from time to time. This is just another road to Dublin.

[EntrepreneurMD]

Uh...because the chance a stock goes to zero is much, much greater than if VTSAX goes to zero. If AAPL or UHC go to zero, I bet VTSAX doesn’t. If VTSAX goes to zero then I bet so do your individual stocks.

"Its laughable to me when people use the argument "well what happens when you buy a stock that goes bankrupt"."

I'm not even going to begin to try explaining to you, don't mind letting you believe this. To others, clearly the point is to own companies with strong balance sheets, growth, potential, etc. and all that is public information so that the stock's trajectory is favorable, not toward 0. Besides, no one I know who has a stock portfolio holds 1 or 2 stocks. They own a diversified array of around 20-50 stocks at least purchased with certain thoughtful criteria, purchased and exited at opportune times (technical analysis). Mitigates risk, often very well compensated like AMZN, FB, TSLA, AAPL, UHC, HD, ORLY, NVSA, XOOM etc. Many do this well. Not the case with traditional broad indexing which holds the good with the bad regardless how poor a company's outlook is. Even when I consider a mutual fund or ETF, I understand the holdings. However for a basic set it and forget it strategy, indexing at index returns is the way to go.

[CordMcNally]

I'm not even going to begin to try explaining to you, don't mind letting you believe this. To others, clearly the point is to own companies with strong balance sheets, growth, potential, etc. and all that is public information so that the stock's trajectory is favorable, not toward 0. Besides, no one I know who has a stock portfolio holds 1 or 2 stocks. They own a diversified array of around 20-50 stocks at least purchased with certain thoughtful criteria, purchased and exited at opportune times (technical analysis). Mitigates risk, often very well compensated like AMZN, FB, TSLA, AAPL, UHC, HD, ORLY, NVSA, XOOM etc. Many do this well. Not the case with traditional broad indexing which holds the good with the bad regardless how poor a company's outlook is. Even when I consider a mutual fund or ETF, I understand the holdings. However for a basic set it and forget it strategy, indexing at index returns is the way to go.

You believe that previous companies haven't gone bankrupt/stock gone to zero that have had supposed 'strong balance sheets, growth, potential, etc.'? As usual, I can't help you.

[Marko-ER]

Nope, no regrets in formally buying/picking individual stocks. However, as I have posted about here before, I have begun to dabble in "direct indexing", basically taking S&P 500 and buying all individual stocks in the S&P, with TLHing of the losers and eventually donating the winners to a donor adviser fund (DAF), or channeling the long-term cap gains into real estate via opportunity zone investments. The process has been quite fruitful, closely tracking S&P500 (about 1.5% positive tracking error). The main detractor has been how much of a time sync it can be to track things.

My next "experiment" is to track VBR -- take all 890 holdings, put the dividend yielding ones into ROTH IRA and non-dividend in taxable, and see how that pans out.