# why does this subforum exist?



## digitalatlas (Jun 6, 2015)

Hi,

I'm curious why this "Individual Stocks/Equities" subforum exists. If there is such support for couch potato investing using ETFs and the like, is this forum mainly made for us to discuss individual stocks for our amusement? Sometimes (and I have done this) one may set aside some relatively small portion of money to buy individual stocks outside of some broader market-wide, hopefully prudent asset allocation. 

But that will probably (as in my case) make such a small impact on the overall portfolio, and do nothing but cause irritation when the stock does poorly, that it feels like the whole exercise was meaningless and should have been avoided to begin with.

Any thoughts? Thanks


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## Just a Guy (Mar 27, 2012)

I’ve always bought individual stocks since day one of my stock investments. The idea of etfs or mutual funds never had any appeal once I learned about them. Of course my strategy is to only buy companies I use and understand, and I usually only buy during a crisis unless the stock is reasonably priced, so I guess this puts me in the minority. 

I wouldn’t need a forum to give me information about a company I was interested in because I’d do the research long before I bought.


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## Dilbert (Nov 20, 2016)

I’m only in ETF’s to the tune of <10%. Mostly individual stocks.


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## like_to_retire (Oct 9, 2016)

I don't own any ETF's or funds - only individual stocks. 

ltr


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## birdman (Feb 12, 2013)

ETF's only comprise 5% of my 25% stock allocation and I enjoy reading the views of others.


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## digitalatlas (Jun 6, 2015)

Cool. That's fair enough.

How many stocks do you own to be well-diversified? Has anyone gauged the difference between their portfolio and market performance over a long period of time, and accounted for the value of their time to research relative to investing in broad index funds/ETFs?

Of course there's always going to be some example of a given person who outperforms, probably those who are most vocal, but there are probably people who underperform too. Isn't there lots of research about how holding broad index/ETFs performs as well as active managing, which I take to be along the lines of picking stocks? I definitely know I'm no Warren Buffet.


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## kcowan (Jul 1, 2010)

digitalatlas said:


> I definitely know I'm no Warren Buffet.


Buffett says that index funds are the best choice for the average investor. He is not an average investor. Neither am I. I have evolved to 25 individual holdings before ETFs were a thing. Now my add and drop activity at the margin is not much work.

If I were starting out today, I would probably avoid the learning curve and use ETFs. But I love following discussions regarding individual companies.

What bothers me about ETFs is that they must hold all the equities in the selected market. OR some representative subset. I always find some of their holdings to be against my judgements. Plus many of them would force me to take regular capital gains that I don't need.

But if you want to become a stock picker, there are better places to hang out.


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## like_to_retire (Oct 9, 2016)

digitalatlas said:


> How many stocks do you own to be well-diversified? Has anyone gauged the difference between their portfolio and market performance over a long period of time, and accounted for the value of their time to research relative to investing in broad index funds/ETFs?
> 
> Of course there's always going to be some example of a given person who outperforms.....................


hehe, you ask if anyone outperforms the index, and then discount it by saying it would be too small a sample size.

I own 24 stocks. That's 3 stocks equally divided for each of 8 Canadian sectors consisting of Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples and Industrial. No Materials, Tech or Health Care. I only invest in Canadian stocks. No US or foreign stocks. My experience was that anything but Canadian stocks didn't offer as good a total net return taking into the consideration the tax advantage of Canadian dividends and currency concerns.

I use to index with ETF's in Canada, but the index contains a lot of duds that are drag on return. The index in Canada is sector lopsided, so for myself, I wanted to represent all but the most volatile sectors.

I switched from indexing to stock picking in Nov 2011. Total return, since then, year to date is 90.1%, compared against the S&P/TSX60 total return (TRIV) of 61.2%. That's a CAGR geometric Average Annual Total Return of 8.36% compared to 6.15% for the S&P/TSX60.

ltr


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## hboy54 (Sep 16, 2016)

digitalatlas said:


> Cool. That's fair enough.
> 
> How many stocks do you own to be well-diversified? Has anyone gauged the difference between their portfolio and market performance over a long period of time, and accounted for the value of their time to research relative to investing in broad index funds/ETFs?
> 
> Of course there's always going to be some example of a given person who outperforms, probably those who are most vocal, but there are probably people who underperform too. Isn't there lots of research about how holding broad index/ETFs performs as well as active managing, which I take to be along the lines of picking stocks? I definitely know I'm no Warren Buffet.


Even many (most?) investors who go with mutual funds or ETFs manage to underperform the vehicles they own, so mutual funds and ETFs somewhat but not completely eliminate the urge to buy high and sell low.

My almost 2 decades for which I have electronic records shows a CAGR of about 10%, 4 or 5 percentage points above the TSX over the period. I also have likely the highest volatility of anyone on this fora: I have had -40% years and +100% years. My brain wiring and lack of need for money can tolerate this.

Most investors see individual stock volatility as a negative. I see it as a positive. Consider BBD.B. In the past year it has ranged from about $5 to $2. I soild about 30% around $4 and loaded up again around $2. I sold high and bought low again. This is a much easier task over a 5:2 stock price ratio than it is over the TSX ratio of whatever it is say 16,500:14,500. Most people just can't do this, buy a stock that is falling in price, fearing it may fall further.

As to research, I do almost none other than following the news. I own companies long term. Some have been in my portfolio 20 years, and the average is about 10 years. I know what is going on just by casual observation.

I own stocks, but I don't think of myself as a stock picker. I am a price picker mostly dealing with the herd of stocks I already happen to own. That isn't to say I won't jump onto something new. I loaded up on HCG at under $7 two summers ago, and a few weeks ago started a position in LNR at $43. Both highly unloved, heading sharply down stocks that most are too fearful to touch. My HCG did head under $5 soon after purchase, but now when it is around $16, $7 seems an OK buy, not right at the bottom, but close enough. Did even better on LNR (so far).

Anyhow that is how and why I hold stocks and I believe have a pretty good record. Others will say I have just been lucky. You get to decide for yourself, but I see what I do as a highly deterministic piece of my life over 20 or 30 years. Much better odds of doing well investing long term than so many other things in life, say being alive, healthy, or staying married.


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## humble_pie (Jun 7, 2009)

digitalatlas said:


> I'm curious why this "Individual Stocks/Equities" subforum exists. If there is such support for couch potato investing using ETFs and the like, is this forum mainly made for us to discuss individual stocks for our amusement? Sometimes (and I have done this) one may set aside some relatively small portion of money to buy individual stocks outside of some broader market-wide, hopefully prudent asset allocation.
> 
> But that will probably (as in my case) make such a small impact on the overall portfolio, and do nothing but cause irritation when the stock does poorly, that it feels like the whole exercise was meaningless and should have been avoided to begin with.




by no means is cmf forum a showplace for the couch potato industry. There are many investors here with interesting & valuable things to say about individual stocks.

i'd say that warren buffett's "advice" to hold ETFs - advice he never used himself, advice he personally contradicted 24/7/365 - is slowly becoming wallpaper. Too many ETFs are now salted with synthetic & derivative holdings. Read their prospectuses & believe them when they say they hold & trade swap contracts, futures, options & index derivatives. Believe them also when they say they lend unspecified securities to hedge funds & when they say ,they engage in "representational trading."

economist haroldCrump & i were early posters of the above pov, several years ago. We used to email each other about how, once upon a time, we had originally been thinking that in our old age we'd aim to hold a small number of core ETFs. 

but gradually our knowledge evolved to the point where we could see the holes in the ETF arguments. We came to believe that holding a high-quality diversified portfolio of actual stocks was, in fact, a great deal more safe.


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## Dilbert (Nov 20, 2016)

I hold 23 individual stocks. I also hold 4 ETFs, ZEA.TO, VIDY, VE and VFV only within my SDRSP and solely for diversification purposes outside of Canada. I like these narrower focused ETFs.


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## Just a Guy (Mar 27, 2012)

Being a buy and hold value investor, I don’t believe in diversification (as it applies to stocks). Owning a “mixed collection of stocks and bonds” to me, means you own stocks and bonds...not really diversified no matter what your holdings as they tend to react as a single market. I’m diversified by owning stocks, bonds, real estate and businesses. 

As for how many stocks, I buy what I think is a good deal, when they are on sale, and don’t worry a sniff about what I already own. I just add to my holdings. I don’t rebalance or sell unless I have a reason to based on that stock. 

I never understood the idea of selling winners to rebalance. Then again, much of the “advice” is given by people who don’t do well in the market. I’m not one who aims for single digit returns.


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## Dilbert (Nov 20, 2016)

JAG, I couldn’t agree more. Being a buy and hold type for dividend income, I’ve never understood the rebalance thing either.


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## m3s (Apr 3, 2010)

I prefer ETFs for exposure to international markets outside NA (VIU/VEE). I don't know enough about those markets

For Canada/US I prefer individual stocks myself but if anyone asks nowadays I just recommend VGRO. I use VTI and VCN as filler if required

I view individual stock picking like DIY projects. Your time may or may not be worth it depending on your skill and time value


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## londoncalling (Sep 17, 2011)

Interesting thread which I think will create some discussion with the same result. That being there are many ways to generate wealth. 

I haven't been in the individual equity position as long as some others here. My journey started around 2012. I was fortunate to sell my Mutual funds prior to the 2008 crash as I saw my financial advisor getting paid to move my money around to create more commissions. I was mostly cash for a few years after as I purchased a house and watched on the sidelines as the market did its thing. I currently hold over 30 positions (C$, US$, and ADRs). In so doing I only pay for a purchase and a sale. Both of which occur very seldom. Still being in accumulation mode I quasi rebalance new money via dividends(no DRIPs) and contributions. Recently two of my larger longest term positions (CHE and IPL) have done a complete 180.

Do I wish I had sold to rebalance? Likely not as then I would have had to do the same with the CSX, AQN and RY all of which provided me with a double or triple since purchase. The sales of such proceeds may have been reallocated to losing positions such as NTR,CPG, CLIQ, or CCO. I wouldn't add to CHE today because it has been a dividend . As for IPL, instead of adding on the recent decline I opted to allocate money to TRP and ENB to diversify.

To say I have no regrets with investing would be a bit of a stretch. However, the bulk of my mistakes were made in the earlier years and I prefer them to be the cost of learning. I have been fortunate to beat the index thus far. Will I continue to do so forever, not likely. 

For me investing is also an interest. For that reason and the ones mentioned elsewhere ETFs are not a fit for me. My wife on the other hand has no desire to invest in individual equities. So for her ETFs are the smart choice.

Cheers


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## fatcat (Nov 11, 2009)

i believe in sector diversification so i do rebalance to a degree but only lightly, i agree with buffett and normally let my winners run as long as possible

for tax purposed i am unable to hold etf's so i am all individual stocks ... the individual forum is very helpful and i always look at other's opinions if i am looking at a particular stock


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## OnlyMyOpinion (Sep 1, 2013)

humble_pie said:


> by no means is cmf forum a showplace for the couch potato industry. There are many investors here with interesting & valuable things to say about individual stocks...


I agree with Humble. CMF is far from a couch potato forum (it's often far from a money/financial forum as well, but that's another thread ).

In fact Humble and others have even tried to put options on the menu from time to time. But those of us too slow to absorb, have to change the channel. 

It would be interesting to know if the younger members are more often etf & couch potato owners than the older set who grew up before etf's were as well established.

I'm early 60's and like others, have held a long term portfolio of Canadian dividend payors as well as a few prefs, reits, and maw104 mf. The dividend payors have drip'd for many years and continue to. I've only had to take out and shoot the occasional dog along the way. 
It's only more recently that we added an etf (VGRO) to our RRSP's which remain predominantly FI. It will be left to grow for another 20 yrs.


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## peterk (May 16, 2010)

Just a Guy said:


> Being a buy and hold value investor, I don’t believe in diversification (as it applies to stocks). Owning a “mixed collection of stocks and bonds” to me, means you own stocks and bonds...not really diversified no matter what your holdings as they tend to react as a single market. I’m diversified by owning stocks, bonds, real estate and businesses.
> 
> As for how many stocks, I buy what I think is a good deal, when they are on sale, and don’t worry a sniff about what I already own. I just add to my holdings. I don’t rebalance or sell unless I have a reason to based on that stock.
> 
> I never understood the idea of selling winners to rebalance. Then again, much of the “advice” is given by people who don’t do well in the market. I’m not one who aims for single digit returns.


Agreed. Not sure why anyone would choose to invest in stocks, real estate, other risky things, if they think all that can reasonably be accomplished is +2-3% more than bonds. I have a hard time though not "selling winners" and switching to something "cheaper". I'm struggling with overcoming the idea of "value investing" to a more general "good investing" in broader holdings, value or not.


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## Just a Guy (Mar 27, 2012)

Maybe that’s not your investment personality. Not everyone thinks the same way, I’m not a good day trader, but I know people who are, they are lousy buy and hold investors. 

You have to discover what kind of an investor you are based on your personality or you’ll be fighting yourself (which it sounds like is already happening). That doesn’t help you in the long run. 

You need to discover what kind of investor you are, once you do you’ll probably find your investment choices are a lot less “risky” than you thought they were.


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## l1quidfinance (Mar 17, 2017)

I hold a mix

As an example my sons resp is exclusively a 4 etf couch potato. My TFSA is mostly individual equities. 

The problem I have is trying to avoid overlap now and figure out the best asset allocation strategy between portfolios. 

RESP
My TFSA
Wife's TFSA
My RRSP
Wife's RRSP
Group RRSP
UK - SIPP (Equivalent to RRSP)

I also do find a lot of value in this sub forum.


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## Eclectic12 (Oct 20, 2010)

digitalatlas said:


> ... I'm curious why this "Individual Stocks/Equities" subforum exists ... Any thoughts?


My take is that you are over thinking it and possibly projecting what you do.

CMF is trying to appeal to a wide range, where some within that range are all individual stocks or a mix instead of mostly coach potatoe. Skipping an individual stock section limits CMF's appeal, regardless of what the individual preferences are.

As well those who don't like the Canadian indexes so they has posted that they are individual stocks for the Canadian market and index the bigger markets.


Finally, those indexing might want to discuss some of what makes up the index (Nortel anyone? BreX?).


Cheers


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## Eclectic12 (Oct 20, 2010)

kcowan said:


> ... What bothers me about ETFs is that they must hold all the equities in the selected market. OR some representative subset. I always find some of their holdings to be against my judgements.
> 
> Plus many of them would *force me to take regular capital gains that I don't need* ...


For a lot I have looked at ... having them in a taxable account means CG from cash or re-invested distributions. For a small market like Canada, eligible dividend paying stock that doesn't have the range of income or bookkeeping requirements seems easier to me.


Cheers


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## james4beach (Nov 15, 2012)

I did a little experiment. Starting at page 30, so we get old stuff from 2015 and before, I opened up 10 random individual Canadian stock threads. Let's call it a sample of stocks that interested forum members. Here are the cumulative performances including dividends for 2016-2018, three years:

FM: +113.8%
NWH.UN: +33.4%
SNC: +18.8%
FTS: +36.4%
CPG: -71.3%
SIS: +156.0%
HNL: -8.0%
BYL: +74.8%
BAR: -68.6%
ARE: +24.7%

The average is +31% = 9.4% annualized. The return of XIU in the same period was +22% = 6.9% annualized. Based on this crude sample, it looks plausible that individual stock pickers can beat the stock index, at least during a bull market. It also looks like stocks mentioned in this section aren't useless.


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## spdr1812 (Apr 8, 2016)

As a new investor , this forum is a gold mine of information .. if all we did was invest in mutual funds and ETFs we could just lay around and rot away and hope for the best . I'd rather take a shot and learn a few things along the way .


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## twowheeled (Jan 15, 2011)

One takeaway I have from learning about successful investors is their relentless drive to read and digest new information, and the value of critical thinking. Something I try to apply to my own investing is always to look at every possible angle, and listen with an open mind to every possible point of view objectively. That is how I started off investing in the couch potato method and eventually moved away from it. Once you begin to assume that your opinion is held by the majority and that lends some sort of credibility/confirmation, you are open to biases.

That is why I caution my friends about buy and hold, low cost indexing. The attitude of the couch potato method seems to be burying your head in the sand, doing as little work as possible, and trust in historical averages. And most importantly,* to dismiss all other strategies*. That is never an attitude I want to have about the markets or any strategy I use. I'm always thinking about the bear case, how could I be wrong, what risks are there that I've overlooked, etc.


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## james4beach (Nov 15, 2012)

I think couch potato and indexing works the best for the majority of people. Most people don't have the time, or the stamina and persistence required to continuously pick stocks and self-evaluate. It's hard to evaluate oneself and to be honest about one's mistakes, need to find new approaches. Indexing / couch potato also reduces the human psychology component.

It even makes perfectly good sense to outsource all that work to a manager with a good track record, and just invest in one of the low MER mutual funds.

One thing I've been focusing on over the last few years is methodology and routine. I like picking stocks, but I've realized over the years that I also have to benchmark myself and be honest about what is working and what isn't. It's very time consuming, but it's also fun for me (a hobby).

By the way, if someone took the individual stocks mentioned in this forum, then filtered away the small stuff and kept only mid and large caps, and then balanced them out for good sector diversification... I'll bet you could run a great portfolio just based on stocks you read about at CMF. Provided that you are also continuously managing your portfolio, pruning it, updating it and not just doing "buy & forget"... which can be disastrous with individual stocks.


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## fatcat (Nov 11, 2009)

james, is investing about companies or numbers ?

you seem to feel that success comes from having the right mix of numbers and i think it comes from having the right mix of companies


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## james4beach (Nov 15, 2012)

fatcat said:


> james, is investing about companies or numbers ?
> 
> you seem to feel that success comes from having the right mix of numbers and i think it comes from having the right mix of companies


I think successful investing = a good rate of return for $ invested, over long periods of time, that exceeds no risk alternatives such as cash and govt bonds.

I agree you need to pick the right companies, the best companies. But if your portfolio doesn't demonstrate a good rate of return over long periods, you're wasting your time and energy IMO

We should all try to pick the right companies, but at the end of the day, measurements of our CAGR tell us whether or not we're succeeding. I don't care much about 5 year performance but over 10+ years, the performance matters... right?


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## OnlyMyOpinion (Sep 1, 2013)

twowheeled said:


> ... That is why I caution my friends about buy and hold, low cost indexing. The attitude of the couch potato method seems to be burying your head in the sand, doing as little work as possible, and trust in historical averages. And most importantly,* to dismiss all other strategies*. That is never an attitude I want to have about the markets or any strategy I use. I'm always thinking about the bear case, how could I be wrong, what risks are there that I've overlooked, etc.


I suggest you let your friends determine their own investing style then. You are quite likely doing them a disservice.


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## OnlyMyOpinion (Sep 1, 2013)

twowheeled said:


> ... That is why I caution my friends about buy and hold, low cost indexing. The attitude of the couch potato method seems to be burying your head in the sand, doing as little work as possible, and trust in historical averages. And most importantly,* to dismiss all other strategies*. That is never an attitude I want to have about the markets or any strategy I use. I'm always thinking about the bear case, how could I be wrong, what risks are there that I've overlooked, etc.


I suggest you let your friends determine their own investing style then. You are quite likely doing them a disservice.


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## Eclectic12 (Oct 20, 2010)

twowheeled said:


> ... That is why I caution my friends about buy and hold, low cost indexing. The attitude of the couch potato method seems to be burying your head in the sand, doing as little work as possible, and trust in historical averages. And most importantly,* to dismiss all other strategies* ...


Depends on what the dismissal is based on and whom it is to be applied to.

Figuring out that due to one's psychology one constantly loses money where coach potatoe lets one sleep at night and avoid selling in late 2008 then go GICs for almost a decade is not a bad thing. Or knowing one's priorities are else where so that the alternative is like my father - GICs and deposit accounts with zero equity, it may be not bad.

Trying to impose coach potatoe on everyone OTOH is a bad thing IMO.




twowheeled said:


> ... That is never an attitude I want to have about the markets or any strategy I use. I'm always thinking about the bear case, how could I be wrong, what risks are there that I've overlooked, etc.


So I'm guessing that your answer to why there is this sub-forum is to give you an alternative view?



Personally, I like the variety. I like that I've made money buying beat up stocks, by holding long term, by leveraged bets on recovery or market pessimism, by trimming in mid 2008 to re buy at half price in 2009 etc.


Cheers


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## fatcat (Nov 11, 2009)

james4beach said:


> I think successful investing = a good rate of return for $ invested, over long periods of time, that exceeds no risk alternatives such as cash and govt bonds.
> 
> I agree you need to pick the right companies, the best companies. But if your portfolio doesn't demonstrate a good rate of return over long periods, you're wasting your time and energy IMO
> 
> We should all try to pick the right companies, but at the end of the day, measurements of our CAGR tell us whether or not we're succeeding. I don't care much about 5 year performance but over 10+ years, the performance matters... right?


right ... whether you are succeeding or not doesn't really matter since you should be investing according to your needs, age, goals risk tolerance and so on

you will have good years and bad years, right ? one year you will kill the index and the next not so much

and if your cagr is lousy in a given year, how will you know how to improve it for the next year ?

you invest in assets, sectors and then companies, you pick a mix that works for you

if you look at your cagr after ten years and it is substandard, what are you going to do ? how will you rectify it ?

all you have is an asset, sector and company mix at the end of the day which is the classic argument for indexing vs stock picking

i could never own a portfolio where i was required by virtue of the numbers (5-pack, 6-pack 12-pack eg.) to own a company i didn't believe in but you do that is one area where we disagree

i am 70 you are 35 so in the end we are going to be investing for different purposes and goals right ?


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## james4beach (Nov 15, 2012)

fatcat, well I'm using mostly passive (indexing) techniques. My 5 pack isn't an attempt to pick "the best companies in existence". It's a passive technique, deliberately so. I don't mean to suggest it's anything other than passive and dumb. I *want* it to be dumb. It picks the largest companies in the TSX 60, a sampling approach.

OTOH, my small cap (Lowdiv) portfolio is more about selecting strong individual companies, so that actually is stock picking. This is 10% of my equity holdings. So 90% of my equities are passive indexing techniques and 10% are individual stock picks where I try to find the best out there.

After a while, if I believe that I am succeeding in that, I'll increase it to become a larger % of my equities. I've already increased it from nil to the 10% of all my stocks because I like how it's looking.

Evaluating this is VERY hard because, as you say, you can go a long time with sub par CAGR and then suddenly do great. No easy answers to this one. I benchmark against XIC because it's the best I can do. If I trail XIC returns after a few years, then I have to ask myself: am I systematically doing worse, am I just a bad stock picker? Or is there reason to think this portfolio might suddenly do great. Very tough questions.


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## fatcat (Nov 11, 2009)

james4beach said:


> fatcat, well I'm using mostly passive (indexing) techniques. My 5 pack isn't an attempt to pick "the best companies in existence". It's a passive technique, deliberately so. I don't mean to suggest it's anything other than passive and dumb. I *want* it to be dumb. It picks the largest companies in the TSX 60, a sampling approach.
> 
> OTOH, my small cap (Lowdiv) portfolio is more about selecting strong individual companies, so that actually is stock picking. This is 10% of my equity holdings. So 90% of my equities are passive indexing techniques and 10% are individual stock picks where I try to find the best out there.
> 
> ...


right, if you conclude you are doing worse, what do you then do ? you might be compounding the error by changing strategies and miss out on growth in the old configuration

the only answer it seems to me is to pay attention to asset allocation, sector allocation and companies, watch out for liquidity and keep re-balancing as appropriate ... you can adjust asset allocation as your life needs change but in the end, you just make what you make

as i recall the 5-pack is designed to avoid the materials/financials bias in the 60 right ? ... for myself i would simply stock pick the companies that you had the most faith in and be done with the passive index subset you have created, this is where you and i diverge and i say you are "mixing numbers" as opposed to "mixing companies" ... aside from the fact it is more fun, i think there are companies that are best-of-breed and prove themselves winners over the rest and i would rather risk my emotional bias than try to flatten it with a passive index 

warren buffets "wide moat" comes to mind, though in the end the biggest 5 in the tsx don't get that way by being poor performers, they tend to be the best of breed so perhaps it doesn't matter

your method ... might ... do a better job of filtering bias and accounting for unknowns

if it works for you that is what matters


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## twowheeled (Jan 15, 2011)

Eclectic12 said:


> Depends on what the dismissal is based on and whom it is to be applied to.
> 
> Figuring out that due to one's psychology one constantly loses money where coach potatoe lets one sleep at night and avoid selling in late 2008 then go GICs for almost a decade is not a bad thing. Or knowing one's priorities are else where so that the alternative is like my father - GICs and deposit accounts with zero equity, it may be not bad.
> 
> ...


Yes I would agree with that statement. I think it boils down to different strokes for different folks, there are many ways to invest or speculate. I try to actually learn about the strategies before dismissing them entirely. And I don't agree with this self defeating message, the couch potato seems to be rather dogmatic in nature IE most active funds fail to outperform indexing so you should just throw in the towel, because you're never going to be as good as a professional money manager. I could easily apply that to other aspects in life. 

Why bother going to college/university and getting a certain degree because statistically the majority of applicants are rejected? In that case I could do some very simple NPV and compounding calculations to arrive at the conclusion that dropping out of high school at an early age and becoming a plumber is actually quicker at building wealth than losing 4-7 years of compounding because you have student debt to pay off and lost that important income early on. I'll call it "couch career"


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## twowheeled (Jan 15, 2011)

OnlyMyOpinion said:


> I suggest you let your friends determine their own investing style then. You are quite likely doing them a disservice.


actually I believe that too many people ramming B&H down peoples throats is quite likely doing them a disservice. Any strategy has risk, and to spend 15 minutes reading about how to put together a couch potato portfolio doesn't adequately prepare you to manage your own portfolio. For example, I see tons of people posting about ETF's asking is this MER low enough, does it give me enough exposure to the SP500, etc. It begs the question do the macro economic conditions matter at all? Does it matter that they are trying to get diversification into European bonds when rates are near 0 and heading negative? Or that the Schiller PE ratio of the SP500 shows a best case scenario of ~3% returns? Most people spend more time planning their summer vacation than looking at their portfolio each year, and that's scary. I don't think B&H is the answer for anyone who has any enthusiasm for looking after their own finances. In any case, if the couch potato method is where you trust your money, there is really no purpose of this forum at all. The strategy is simple enough that anyone can implement it. After we all agree on which ETF's have the lowest MER what else is there to talk about?


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## james4beach (Nov 15, 2012)

fatcat said:


> as i recall the 5-pack is designed to avoid the materials/financials bias in the 60 right ? ... for myself i would simply stock pick the companies that you had the most faith in and be done with the passive index subset you have created, this is where you and i diverge and i say you are "mixing numbers" as opposed to "mixing companies"


Yes my 5 pack was designed to avoid the bias, and equal weights 5 sectors.

The problem I have with the "just pick the best" approach is that, it's fine in the short term, but becomes more complicated in the long term. I don't think any stock is a buy & hold forever proposition. Good companies can go bad. And previously good companies can be surpassed by new up and comers. This doesn't happen on the five year time scale, but definitely happens over longer periods.

If someone puts together a great portfolio of companies today, how do they adapt to the inevitable changes over the decades? Here were the largest weight stocks in the TSX 60 at the end of the year 2000. At the time, these were the biggest & best stocks:

Shaw Communications Inc.
Thomson Corp
Gulf Canada Resources Ltd
Petro-Canada
Suncor Energy Inc.
Royal Bank of Canada
Toronto-Dominion Bank
Bombardier Inc.
Canadian Pacific Ltd
Nortel Networks Corp
Abitibi-Consolidated Inc
Barrick Gold Corp.
BCE Inc
TELUS Corp
TransCanada Pipelines Ltd.
TransAlta Corp

What would have happened if someone just bought and held these over the last 18 years? I don't actually know the answer, but just looking at the list shows you how things change over time. Some of these companies failed and got delisted, or got acquired at a fraction of their earlier share values. Ignoring the big weight on NT at the time... let's say you equal weight these... it would be interesting to know what the return to today would be.

I suspect that an index fund would have gotten a better return.



fatcat said:


> i think there are companies that are best-of-breed and prove themselves winners over the rest


Yes, and you can choose those today. What about in 10 years, when the company is no longer best of breed? Are you really going to notice that and adapt? Or will you, as many people do, avoid selling the stocks because you've grown attached, or don't want to realize a loss (telling yourself it's not a real loss until you sell)? Countless stock pickers cling to their loser stocks, hoping for them to come back.

Just look at GE and Bombardier, great industrial stocks once.


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## cainvest (May 1, 2013)

twowheeled said:


> actually I believe that too many people ramming B&H down peoples throats is quite likely doing them a disservice. Any strategy has risk, and to spend 15 minutes reading about how to put together a couch potato portfolio doesn't adequately prepare you to manage your own portfolio.


I don't think suggesting a B&H couch potato portfolio is a disservice, it does what it is supposed to do .... provide reasonable returns with minimal effort. It's likely a good step for those that want to take some control over their investments. Really it just gets them away from those who charge a fee for doing so and they basically end up with the same portfolio, less the fees.



twowheeled said:


> I don't think B&H is the answer for anyone who has any enthusiasm for looking after their own finances. In any case, if the couch potato method is where you trust your money, there is really no purpose of this forum at all.


Even though I generally follow buy and hold indexing I still look for value in CDN dividend stocks to own. For example, I picked up some Enbridge last year, sold half of it off when it rose and will continue to hold the rest for dividends.

So if indexers want to augment their portfolio with individual stocks, all the power to them. I does take much more effort to dig into a company financials/outlook/news but there can be rewards for doing so.


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## fatcat (Nov 11, 2009)

james4beach said:


> Yes my 5 pack was designed to avoid the bias, and equal weights 5 sectors.
> 
> The problem I have with the "just pick the best" approach is that, it's fine in the short term, but becomes more complicated in the long term. I don't think any stock is a buy & hold forever proposition. Good companies can go bad. And previously good companies can be surpassed by new up and comers. This doesn't happen on the five year time scale, but definitely happens over longer periods.
> 
> ...


good companies do go bad but only very rarely do they go bad quickly ... i have a diverse portfolio in in many sectors with dividend stocks and some growth, no one stock, even my 3 biggest CNR,QQQ and SU wouldn't take me down if they disappeared overnight ... any disciplined investor surveys his holdings and trims ... i just sold BRK.B after a nice long run, i think buffet is losing it, he's too old witness, KHC (which i did lose a small amount on but quickly sold after this lost debacle) ... i may well be wrong, i never look back, the money is useful elsewhere

you are saying "i don't trust myself so i account for that by picking my stocks with a formula of my own making" it seems to me you are not only taking a an equal risk to "favourites bias" with your handpicked formula which may or may not be any good after 10 years but working against your own confidence as an investor and this seems the worst mistake to me ... confidence doesn't equal stupidity

why not create a handpicked stock lists and create a formula that decides, regardless of your emotion, when to sell, in other words, if there are more than 4 analysts downgrades and 15% drop in 6 months, or whatever such a formula would look like, i must sell, something like that, if you are so worried that you will lose on a given favourite stock

and again, stay well diversified and never put too many eggs in one basket ... you can create a formula for that 

you are way overestimating the danger of owning a portfolio of say 20+ (i have 18) and learning to be proactive about trimming any that start to stumble,
even if you get a loser most will be winners if you pick in the pool of best of breed

you are working so hard to save yourself from emotional bias that you are overlooking completely your own blindness / bias which is that you are far over compensating to protect the downside risk and far under-compensating to take advantage of the upside

and this bias is costing you plenty


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## james4beach (Nov 15, 2012)

I get your point fatcat, but I don't think I'm overestimating the tendency to get stuck with bad stocks when you stock-pick. I've seen several other people's individual stock portfolios over the years, and nearly all underperform the index. There are obviously a few pros who are really good at maintaining their portfolios, and maybe you're one of those.

The investment industry and all the machinery around it also _encourages_ the idea that anyone can grow their wealth by picking great stocks. They have endless segments on MSNBC, BNN, web sites dedicated to stock picking, etc. I just don't believe in the story of "stock picking to riches". I've seen real portfolios. Most people do really badly at stock picking.

People also fib about their track records to others. They exaggerate how well they've done and usually omit the one or two big failures. I've seen all this... I know how people brag about their stocks. Self-reported CAGR is almost always over-stated, especially if someone gives themselves "a fresh start" to mentally discount past failures.

The index itself is active, by the way. They use metrics to add and delete stocks, and even apply some human discretion. But I think the secret to why the index tends to do better than individual stock pickers is: the index uses consistent methodology, has very low turnover, and is professionally managed at a very low cost.


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## kcowan (Jul 1, 2010)

fatcat said:


> you are way overestimating the danger of owning a portfolio of say 20+ (i have 18) and learning to be proactive about trimming any that start to stumble, even if you get a loser most will be winners if you pick in the pool of best of breed


One of my 20+ is CPX. Current yield is 6% and dividend growth is 7%. I could have made more by trading in and out but I am happy with it as a long term hold.


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## fatcat (Nov 11, 2009)

kcowan said:


> One of my 20+ is CPX. Current yield is 6% and dividend growth is 7%. I could have made more by trading in and out but I am happy with it as a long term hold.


good reminder eder thanks, i have looked at them in the past and will add them to my watchlist, perfect for my parameters


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## fatcat (Nov 11, 2009)

james4beach said:


> I get your point fatcat, but I don't think I'm overestimating the tendency to get stuck with bad stocks when you stock-pick. I've seen several other people's individual stock portfolios over the years, and nearly all underperform the index. There are obviously a few pros who are really good at maintaining their portfolios, and maybe you're one of those.
> 
> The investment industry and all the machinery around it also _encourages_ the idea that anyone can grow their wealth by picking great stocks. They have endless segments on MSNBC, BNN, web sites dedicated to stock picking, etc. I just don't believe in the story of "stock picking to riches". I've seen real portfolios. Most people do really badly at stock picking.
> 
> ...


if you are basing your conclusion on what the investment industry tells people to do then no wonder you hold a viewpoint that i think is frankly mistaken

remember this please: there is a huge difference between stock picking by constantly trading and churning one's portfolio and stock picking by choosing best of breed stocks and simply holding them for as long as possible, absent any compelling reason to sell ... i bought CNR several years back and i see no reason to sell them, at all, ever, at this point as one example, even if they do have bad quarters .... using your method they might not qualify for your statistical subset (though i think they do as i recall it)

these are two very different approaches, don't conflate them

yeah the industry hustles all of us, everytime i log in to tdw i see a new fancy platform to give me "more and better insights" into newer and better stocks and the entire purpose behind it is to get me to trade trade trade

you are overestimating the tendency to get stuck with bad stocks 

if you choose a portfolio of higher cap stocks (say 20+ diversified across at least 7 sectors) with track records and products and services that you like and stay with them, you and most people will do really well over 10 years

and sorry to say this but if this isn't a route you like then you are better off just buying the index (even the skewed tsx-60 XIU, which shouldn't bother you because of all the gold ) than trying to create a subset which in my opinion is even more risky than a basket of top quality hand-picked stocks

at least if you own the index you never have to worry about beating the index


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## james4beach (Nov 15, 2012)

fatcat, I just don't believe it. According to you and other stock pickers on this forum, it's so easy to manage a portfolio of stocks over the long term and apparently beat the index. And yet we know that mutual fund managers pretty much get index returns once fees are taken into consideration, so mutual funds are closet indexers over long periods.

Am I supposed to believe that I will do better than a typical mutual fund manager? If your claim is that I should be able to ... why?

I find it funny that everyone around here says the TSX is a bad index and it's _so easy_ to beat it. Apparently everyone here knows the secret to beating the index, but nobody told any of the Canadian equity fund managers  You guys who are such amazing stock pickers should start consulting for mutual funds and hedge funds. They would pay you millions for your skills!

By the way, XIU only has 5% in gold miners so I don't know what you're getting at there. The big skew in TSX 60 is banks, and somewhat in energy. But not miners/materials.


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## fatcat (Nov 11, 2009)

james4beach said:


> fatcat, I just don't believe it. According to you and other stock pickers on this forum, it's so easy to manage a portfolio of stocks over the long term and apparently beat the index. And yet we know that mutual fund managers pretty much get index returns once fees are taken into consideration, so mutual funds are closet indexers over long periods.
> 
> Am I supposed to believe that I will do better than a typical mutual fund manager? If your claim is that I should be able to ... why?
> 
> ...


james, either i am sloppy in my writing or you are reading things into what i am saying

no, indeed, i don’t think that most people will beat the index over say 10 years, not at all, stock picking really is only to allow people to get the right mix of assets: growth vs dividend, stocks vs bonds and so on ... by “stock picking” i only mean assembling your own mix vs just buying the index

right on the tsx, haven’t even looked lately, so yes it is heavy financials and energy which is not new, it is not an sp 500, though the skew in fiancials doesn’t bother me the skew in energy would which is why i have my own mix

i am not claiming that you are going to beat the average mutual fund manager or the index

what i am saying if you are going to create an artificial subset of the index (a pac - of 5,6,12 whatever) you are taking even greater risk than just buying the index itself

isnt the purpose of the subset-pac designed to filter out the biases of the index ?

then why not either just buy XIC or make your own mix of companies to mirror the tsx and soften the effect of financials and energy... in other words stock pick the best and then hold on for 10 with relatively little need to rebalance ... except between other assets classes like bonds gics and, gold bless you, gold ​


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## james4beach (Nov 15, 2012)

fatcat said:


> no, indeed, i don’t think that most people will beat the index over say 10 years, not at all, stock picking really is only to allow people to get the right mix of assets: growth vs dividend, stocks vs bonds and so on ... by “stock picking” i only mean assembling your own mix vs just buying the index


OK, I see what you mean. It definitely makes sense for one to assemble their own mix which suits them. e.g. dividend stocks for automatic cashflow payout



> what i am saying if you are going to create an artificial subset of the index (a pac - of 5,6,12 whatever) you are taking even greater risk than just buying the index itself
> 
> isnt the purpose of the subset-pac designed to filter out the biases of the index ?


Somehow I'm still not following the argument. Yes my XIU-based pack is designed to filter out sector skews. I equally weight all sectors, which I believe is a better approach than the XIU weights. Are you describing it as "taking greater risk" because I'm using just a few securities in lieu of the entire TSX 60?

I'm not sure what's riskier about my technique. I think I'm actually reducing risk by achieving better sector diversification.



> then why not either just buy XIC or make your own mix of companies to mirror the tsx and soften the effect of financials and energy


That second part: that's what I'm doing. I take the largest cap stocks of XIU, which already pretty much drive the _entire_ TSX. Then I alter the mix to soften the effect of financials and energy, as you said, by arranging them into equal weights. You can think of it as mirroring the TSX, but adjusting the sector weights. Otherwise it's virtually the same as the TSX 60.

The five stocks I hold individually are 1/4 (by market cap weight) of XIU itself. So that virtually guarantees that my stocks will move the same as XIU. The only difference is equal sector weighting. The overall thing mirrors the TSX.

Yes it is possible that one of my stocks. e.g. BCE, could absolutely crash and I would have had better diversification in XIC. But I think if we find ourselves in a year where BCE or another mega cap crashes, that it's going to be a bad year all around.

Anyway I still don't understand why that technique rubs you the wrong way. It sounds like what you're describing above when you say "make your own mix of companies to mirror the tsx and soften the effect of financials and energy". That's what I think I'm doing. However, I'm doing it based on a robotic/mathematical technique instead of hand picking stocks.


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## fatcat (Nov 11, 2009)

james4beach said:


> OK, I see what you mean. It definitely makes sense for one to assemble their own mix which suits them. e.g. dividend stocks for automatic cashflow payout
> 
> 
> 
> ...


in simplest terms i am saying you should trust your own acumen and pick the stocks that you believe are the best of the breed based on your own knowledge and research .... not based on a formula which, for example may require you to sell a good stock because it doesn't fit the formula

i believe this exposes you to greater risk than the risk you cite of becoming emotionally attached to a stock so that you lose perspective ... we all have our biases, i tend to buy too high but i am ruthless and very good about selling a poor performing stock, doesn't matter what the stock is

also, yes, i absolutely believe you are holding too few stocks ... simple math tells us that this exposes you to greater risk (and of course the possibility of greater reward) but you are highly risk averse and frankly a large basket of equities might allow you to hold a greater portion of assets in equities since you would be able to weather downturns much better than with a few badly performing individual stocks

good sector diversification can't be overestimated, some will always be down and others always up (barring broad pessimism and broad euphoria)

i think you are well underweight equities and over weight gold as we have discussed many times and this drags your returns

in the end trusting good companies is a better solution than trusting an arbitrary formula, lets face it there are thousands of "beat the market" formulas out there and this is one more right ?

i think you just plain like the number crunching and trying to find a great formula which is a whole other matter, you enjoy yourself and its your money 

i would rather choose the best stocks and trade as little as possible, pay attention to my asset mix, stock sectors and especially liquidity and then go for a walk ... er, go do yoga and ride my bike


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## Eclectic12 (Oct 20, 2010)

twowheeled said:


> ... I try to actually learn about the strategies before dismissing them entirely. And I don't agree with this self defeating message, the couch potato seems to be rather dogmatic in nature IE most active funds fail to outperform indexing so you should just throw in the towel, because you're never going to be as good as a professional money manager.


It seems more of an argument to use the method than a reason to dismiss the strategy out of hand. 

Most articles about a strategy or method either have built into the article that "this is the way", either through implication or similar statements. I can only recall a scant few sources that provided an overview without pushing one or another strategy.


At the end of the day I care more about how to use the strategy/method to make money and when it makes sense to take it out of the toolbox than the promo material that may or may not apply and may have some faults to it. :biggrin: 


Dogmatic or not, discouraging or not ... I personally know investors that have a long history of turning $100K into $20K and not learning from their mistakes who would be substantially better off if they'd moved to potatoe strategy. Instead they seem to prefer repeating the same actions hoping for a different results or handing off to a "professional" or avoiding equities.





twowheeled said:


> ... Why bother going to college/university and getting a certain degree because statistically the majority of applicants are rejected?
> 
> In that case I could do some very simple NPV and compounding calculations to arrive at the conclusion that *dropping out of high school at an early age* and becoming a plumber is actually quicker at building wealth than losing 4-7 years of compounding because you have student debt to pay off and lost that important income early on. I'll call it "couch career"


Things must have changed in the last several decades then. The high school trades programs in my area were dropped at least three decades ago. Grade 12 might get you into the apprenticeship, where I seem to recall college was a safer bet of being accepted.



Cheers


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## OnlyMyOpinion (Sep 1, 2013)

I didn't take 2W's comment as actually supporting high school dropouts. I think they were comparing it to investing in etf's - both a short sighted failure?
Clearly 2W is a more successful & active investor than I and many others are though, so I may be wrong.


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## Eclectic12 (Oct 20, 2010)

twowheeled said:


> ... Most people spend more time planning their summer vacation than looking at their portfolio each year, and that's scary. I don't think B&H is the answer for anyone who has any enthusiasm for looking after their own finances ...


OTOH ... looking at his portfolio in the fall of 2008 resulted in a co-worker selling off all equities followed by about five years of GICs only. I suspect that B&H would have worked better for at least the Canadian market.




twowheeled said:


> ... In any case, if the couch potato method is where you trust your money, there is really no purpose of this forum at all. The strategy is simple enough that anyone can implement it. After we all agree on which ETF's have the lowest MER what else is there to talk about?


For this sub-forum on individual stocks ... sure.

For the forum at large ... there's lots to talk about. What new ETFs there are, what areas the ETFs are investing in, when to use a leverage ETF, which "ETFs" are actively managed, which ETFs will lose foreign withholding taxes in a registered account and whether currency hedging is worth it ... to name some topics. Then there's the often missed tax implications of an ETF held in a taxable account. Some examples include that ETF cash payments are rarely all eligible dividends, return of capital paid decreases the cost base while re-invested capital distributions increase the cost base. 



Cheers


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## twowheeled (Jan 15, 2011)

Eclectic12 said:


> It seems more of an argument to use the method than a reason to dismiss the strategy out of hand.
> 
> Most articles about a strategy or method either have built into the article that "this is the way", either through implication or similar statements. I can only recall a scant few sources that provided an overview without pushing one or another strategy.
> 
> ...


I don't think my point really came across. If the question is, why bother looking at individual stocks because B&H indexing can deliver statistically better returns for the average Joe? 

Then my response is, why do entrepreneurs start small businesses when statistically they are likely to fail? Why don't they just take that money and invest in the S&P? Why do people go to university and try to enrol into programs like medicine where statistically you are likely to be rejected? The whole attitude behind B&H indexing seems to be, because most professional managers cannot beat the market, you can't have a hope of outperforming these managers, so you should know your place and accept mediocrity. If that is your MO, which is fine, then you should be applying that to all aspects of your life. Not just your financial planning. If we are all so pragmatic we would not aspire for success, not bother with marriage, not take any risks. I'll cash in the RESP for my kids, they're not going to school and losing that 4-6 years of valuable compounding.

I'm not sure if this is just inherent of indexers (not from you but in general), the attitude is really irritating. And the arguments seem to be "prove to me that you can beat the index by showing me your own active portfolio, otherwise you're a failure and an idiot". What is the purpose of this kind of confrontation? You wouldn't go up to someone running a small business and say "open up your books and show me your return is better than the S&P, or you're a wasting your time." 

I agree there are a lot of articles with promotion, but that comes with reading free material or from a source that is trying to sell you on a newsletter or subscription service. I would suggest reading books instead of articles/blogs. The barrier to entry is much higher which brings quality. There are a variety of styles which are objectively backtested against buy and hold, where the author has nothing to sell. Some I have really enjoyed such as momentum, market timing, and trend following. I have mentioned before that even Eugene Fama who developed efficient market hypothesis has acknowledged that momentum is the premier anomaly. And it is clear to see why fund managers would never be able to use a strategy like that without being fired after a couple of quarters of underperformance.


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## james4beach (Nov 15, 2012)

twowheeled said:


> Then my response is, why do entrepreneurs start small businesses when statistically they are likely to fail? *Why don't they just take that money and invest in the S&P?*


Increasingly, they are doing just that. People and institutions who have lots of capital are increasingly just investing it into passive stock indices instead of bothering to create new businesses, or investing into their existing businesses. This has been a notable trend since 2000.

This accelerated after 2008. This is why a lot of the wealth gain in society has gone to those who already have lots of capital, since a lot of the stimulus measures (central bank money printing etc) has _mainly_ inflated financial assets such as indexes. We're living in an environment that heavily favours passive capital allocation instead of actual capital deployment into business. Those with huge stock portfolios have been the primary beneficiaries... there is very little reason for them to spur new business activity.

Plus, some central banks actually buy stock indices directly. The Bank of Japan buys large cap Japanese stocks (basically buying the index), and the Swiss National Bank has bought $80 billion of S&P 500 index. The money printed by other central banks also finds its way into the stock index... we're talking about trillions of $ of support for the stock index!



> You wouldn't go up to someone running a small business and say "open up your books and show me your return is better than the S&P, or you're a wasting your time."


This does actually happen, too. Berkshire Hathaway owns a whole bunch of companies directly, with divisions in insurance, utility, home financing. A few years ago, people started criticizing BRK for underperforming the S&P 500 index.

So my point is, everyone in the economy is increasingly favouring passive stock investment over traditional business activities. Currently, there are a lot of advantages to passive investing, and the central bank stimulus programs (low interest rates & QE) makes this even more pronounced. If you have a lot of capital, there is very little reason to start a new business or take a risk in traditional business.

A corollary to what I describe above is: large cap (indexing) and couch potato strategies will work best as long as central banks continue this style of stimulus and stock market support, which is focused on indexes and large caps. Central banks support the stock index, *not* your small business. If, however, the central banks end this kind of intervention, then the allure of indexing and couch potato'ing will drop off a bit.

I can even imagine a "collapse" of the index ETF craze if the central banks turn their back on supporting stock markets. Very few people expect this to happen.


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## cainvest (May 1, 2013)

twowheeled said:


> The whole attitude behind B&H indexing seems to be, because most professional managers cannot beat the market, you can't have a hope of outperforming these managers, so you should know your place and accept mediocrity. If that is your MO, which is fine, then you should be applying that to all aspects of your life. Not just your financial planning.


Simple answer ... motivation and time.

Not everybody wants to learn finance, most I know invest through an advisor. Some others see they can gain a bit by B&H indexing themselves and cutting out the advisor out of the picture for minimal effort/time. Then you'll have others that'll put the time into managing their portfolio, some will win and some will lose.

Not sure why you'd say that one has to apply this to others aspects of their life? If one is really focused on their school/career they likely don't have the time to spend on "trying to beat the market". Another question is, why does one "need" to beat it?


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## twowheeled (Jan 15, 2011)

cainvest said:


> Simple answer ... motivation and time.
> 
> Not everybody wants to learn finance, most I know invest through an advisor. Some others see they can gain a bit by B&H indexing themselves and cutting out the advisor out of the picture for minimal effort/time. Then you'll have others that'll put the time into managing their portfolio, some will win and some will lose.
> 
> Not sure why you'd say that one has to apply this to others aspects of their life? If one is really focused on their school/career they likely don't have the time to spend on "trying to beat the market". Another question is, why does one "need" to beat it?


If you're not willing to apply motivation, time, and risk towards outperforming the average in personal finance, you should look for the point on the curve that involves the least amount of effort with the maximum gain. That is couch potato indexing. 

Apply that to your education and career, then you should strive for a mundane job earning the average income. This would make a great graduation speech for highschoolers, "why do you need to beat the average?" You can brag about this to your coworkers in the frozen food isle, "it's too difficult to beat the average, so I'm decided to *be* the average"


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## cainvest (May 1, 2013)

twowheeled said:


> If you're not willing to apply motivation, time, and risk towards outperforming the average in personal finance, you should look for the point on the curve that involves the least amount of effort with the maximum gain. That is couch potato indexing.


Exactly



twowheeled said:


> Apply that to your education and career, then you should strive for a mundane job earning the average income. This would make a great graduation speech for highschoolers, "why do you need to beat the average?" You can brag about this to your coworkers in the frozen food isle, "it's too difficult to beat the average, so I'm decided to *be* the average"


Not sure why you feel that has to apply to other factors in ones life ...


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## twowheeled (Jan 15, 2011)

james4beach said:


> Increasingly, they are doing just that. People and institutions who have lots of capital are increasingly just investing it into passive stock indices instead of bothering to create new businesses, or investing into their existing businesses. This has been a notable trend since 2000.
> 
> This accelerated after 2008. This is why a lot of the wealth gain in society has gone to those who already have lots of capital, since a lot of the stimulus measures (central bank money printing etc) has _mainly_ inflated financial assets such as indexes. We're living in an environment that heavily favours passive capital allocation instead of actual capital deployment into business. Those with huge stock portfolios have been the primary beneficiaries... there is very little reason for them to spur new business activity.
> 
> ...


well Berkshire has shareholders it has to be accountable to, so I'm not sure what the point is there. However if your view is indexing because of central bank policy, then your strategy is no longer indexing and buy and hold, you're looking at it from a macro point of view. Imagine a situation where someone in Germany or Japan was trying to allocate a typical 60/40 portfolio with general notion it offered a good balance of risk and return, but not truly understanding the underlying assets. Is indexing the answer?


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## twowheeled (Jan 15, 2011)

cainvest said:


> Not sure why you feel that has to apply to other factors in ones life ...


have we not established that it is pointless to apply time and effort to endeavours where you are statistically likely to fail?


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## cainvest (May 1, 2013)

twowheeled said:


> have we not established that it is pointless to apply time and effort to endeavours where you are statistically likely to fail?


uhhh, no. Did I miss that?


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## Eclectic12 (Oct 20, 2010)

twowheeled said:


> I don't think my point really came across. If the question is, why bother looking at individual stocks because B&H indexing can deliver statistically better returns for the average Joe?
> 
> Then my response is, why do entrepreneurs start small businesses when statistically they are likely to fail? Why don't they just take that money and invest in the S&P? Why do people go to university and try to enrol into programs like medicine where statistically you are likely to be rejected?
> 
> ...


Some of my classmates in high school did apply this to their career choice ... though not to investing, ironically enough.

Others picked and chose what they wanted to aim for and what was better to go with the flow for.




twowheeled said:


> ... I'm not sure if this is just inherent of indexers (not from you but in general), the attitude is really irritating ...


Is this any different to those who insist that stock picking, value investing, momentum investing, day trading, technical analysis, technology stoks only, GICs/Bonds/cash deposits or whatever single method they favour is the "right and only way to go"?

Maybe it's because I've had many different people push whatever they like that I don't really pay attention to the single minded focus.




twowheeled said:


> ... And the arguments seem to be "prove to me that you can beat the index by showing me your own active portfolio, otherwise you're a failure and an idiot". What is the purpose of this kind of confrontation?


Usually when it's that sort of confrontation I say my bit and move on because it usually is not a conversation or debate.




twowheeled said:


> ... I agree there are a lot of articles with promotion, but that comes with reading free material or from a source that is trying to sell you on a newsletter or subscription service. I would suggest reading books instead of articles/blogs. The barrier to entry is much higher which brings quality ...


YMMV as one of the beginner books a friend bought was good at laying out the landscape of bonds, stocks, MFs, ETFs etc. but was pushing MFs with pro-money managers as supposedly regular working types were too limited in their available time, might not have the right mental attitude and couldn't be consistent compared to those with a full working day at their disposal. 

The only slightly redeeming part was that there was no direction to particular MFs or particular advisors.




twowheeled said:


> ... And it is clear to see why fund managers would never be able to use a strategy like that without being fired after a couple of quarters of underperformance.


This is one of the weaknesses I see to blindly using the fund manager's performance or under performance. 


Cheers


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## Eclectic12 (Oct 20, 2010)

twowheeled said:


> If you're not willing to apply motivation, time, and risk towards outperforming the average in personal finance, you should look for the point on the curve that involves the least amount of effort with the maximum gain. That is couch potato indexing.
> 
> Apply that to your education and career, then you should strive for a mundane job earning the average income. This would make a great graduation speech for highschoolers, "why do you need to beat the average?" You can brag about this to your coworkers in the frozen food isle, "it's too difficult to beat the average, so I'm decided to *be* the average"


Trouble is ... few people have the time, motivation etc. to strive to be above average at investing, at their job or business, at being a parent, at having relaxing vacations, at home repair, at taking care of elderly parents, at being an executor, at using computers effectively, at taxes, at whatever else roles they play or want to play.

It seems to be to insist that the same method be applied across the board to one's life is somewhat similar to the indexing fans who insist on multiple decade proof while ignoring the multiple decade proof that is already available (at least for the smaller Canadian market). 


Cheers


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## Just a Guy (Mar 27, 2012)

Funny thing is, if you’re good at stock picking, you can develop a passive income which allows you more time to do stock picking.

I’ve never been a fan of single digit returns and have been lucky enough with my value strategy to build up a good portfolio. It was quite important since I was unable to work at the time when I started (and there were a few “crisis’s “ that hit dropping the price of stocks I knew). It wasn’t a particularly fast way to make money, but eventually it took off. I still like real estate because theeenare more opportunities which hit my strategy, but I’ve done well in stocks too.

For those interested, my strategy is basically buy good companies who’s products I know and use when they go on sale because of a crisis. That’s it, pretty simple.


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## twowheeled (Jan 15, 2011)

Eclectic12 said:


> Trouble is ... few people have the time, motivation etc. to strive to be above average at investing, at their job or business, at being a parent, at having relaxing vacations, at home repair, at taking care of elderly parents, at being an executor, at using computers effectively, at taxes, at whatever else roles they play or want to play.
> 
> It seems to be to insist that the same method be applied across the board to one's life is somewhat similar to the indexing fans who insist on multiple decade proof while ignoring the multiple decade proof that is already available (at least for the smaller Canadian market).
> 
> ...


I don't disagree with you, but you have to admit the sheer ignorance in a thread topic such as this one. Which is not only to dismiss all other strategies, but deem it pointless to even discuss or learn anything about them for all forum members. I mean talk about confirmation bias.


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## james4beach (Nov 15, 2012)

It's just the classic indexing vs stock picking argument, which pops up all the time. Some people do better than the index with stock picks, others don't. Then there's the difficult question about whether those who outperform the index just got lucky (and we're seeing survivorship bias), or whether their process is repeatable over long stretches of time.

And then there's the philosophical follow up question about whether some new person who comes along should also try picking individual stocks. Are they more likely to outperform or under perform? And will the _average experience_ just be the same as the index? I think that the passive index investing philosophy argues that the average experience will be the same as the index, even after all that work.


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## OnlyMyOpinion (Sep 1, 2013)

Some will find it difficult to accept they might be lucky, or just 'average' investors over time.

It reminds me how often I hear about someone who made money at the casino. I never hear stories about losing money.


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## Just a Guy (Mar 27, 2012)

I did lose money on a stock...but it’s one that violated both my strategy and my investment personality. I saw a classic pump and dump unfolding before me, recognized it for what it was, and tried to cash in on it...only problem is I’m not a stock watcher and I was even to lazy to put in sell orders or stop losses. 

So far, when I’ve stuck to my strategy, and don’t go against my investment personality, I haven’t had losses. That could be luck, but it would be a very lucky streak at this point. 

The whole experience taught me more about myself and how I should invest. Eventually I wrote off the loss against gains, so it wasn’t that bad.


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## james4beach (Nov 15, 2012)

OnlyMyOpinion said:


> It reminds me how often I hear about someone who made money at the casino. I never hear stories about losing money.


Right, people don't show up on internet forums and say "I've been picking individual stocks for the last 10 years, and my returns are terrible versus the index". People only proudly show off _good_ results. It's human nature, but that's something you have to remember whenever you read stories on the internet.

I've been investing since 1999 or so and have seen plenty of top stock picks over the years (Yahoo forums, friends, coworkers). Over the years I was surprised how many people's favourite stocks were collapsing, so I started keeping a record of collapsed stocks.

Here are stocks which people pitched as their favourite holdings at some point, that since collapsed and delisted (mix of Canadian and US). I've bolded some of the very large cap ones which caused massive losses for huge numbers of investors:

ABH
ABK
AMR
ANP
BSC
CC
*CFC*
CGS
CTL
CVQ
DL
EK
ENER
*FNM*
FPS
*FRE*
*GM* ... total loss even though new one was listed later
IE
IMH
IQW
*LEH*
LTS
*MER*
NEW
NFI
*NT* ... you'll still see the pain even in recent CMF threads
OIL
PMI
PRE
RACK
RMP
RSH
SCC
SFXE
*SHLD* ... was a TV darling on CNBC for years
SSCC
TLC
VC
WB
WM
YLO

This is not a thorough list. It's only the ones I noted down because I encountered people who heavily invested in them, which is how I know that a lot of people lose a lot of money investing in stocks.


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## kcowan (Jul 1, 2010)

james4beach said:


> This is not a thorough list. It's only the ones I noted down because I encountered people who heavily invested in them, which is how I know that a lot of people lose a lot of money investing in stocks.


Thanks James. I consider my 25 equity investments to be boring but I get S&P500 returns without MER drag. That might be considered a boring beat. Only one of your list bit me and that was through a convertible debenture.


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## Eclectic12 (Oct 20, 2010)

twowheeled said:


> I don't disagree with you, but you have to admit the sheer ignorance in a thread topic such as this one. Which is not only to dismiss all other strategies, but deem it pointless to even discuss or learn anything about them for all forum members. I mean talk about confirmation bias.


Sure ... but as I say, I've had others push their preferred method, dismissing all other methods so from my POV - it isn't just indexers.

I can recall those who hate index linked GICs being rabid that this was the worst thing possible despite my pointing out that the investor in question would have been going with a regular GIC with other equities choices out of the picture.


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... I've been investing since 1999 or so and have seen plenty of top stock picks over the years (Yahoo forums, friends, coworkers). Over the years I was surprised how many people's favourite stocks were collapsing, so I started keeping a record of collapsed stocks.
> 
> Here are stocks which people pitched as their favourite holdings at some point, that since collapsed and delisted (mix of Canadian and US). I've bolded some of the very large cap ones which caused massive losses for huge numbers of investors ...
> 
> This is not a thorough list. It's only the ones I noted down because I encountered people who heavily invested in them, which is how I know that a lot of people lose a lot of money investing in stocks.


Thanks for the list ... but the question is whether you are assuming stock popularity + collapse guarantees the losses. Or have you been tracking people's performance, despite their unwillingness to talk about their losses.

I am not sure of the relevance to me.


I have been investing since 1999 or a bit earlier where I recognise only one stock from that list, NT. As I have said before, for the accounts I controlled (i.e. non-pension), I made money on NT (bought at $3, sold 1/3 at $12 and the reset at $8).


Seems to me you are proving one needs to be careful and adjust based one's performance - not what's possible or even what one's performance is.


Cheers


*PS*
I'll have to check the list more thoroughly but I don't seem to see BlackBerry on the list. I know those that lost money in it but for me, the six trades had one similar sized loss to the gains so net, it was up 4x.


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## hboy54 (Sep 16, 2016)

Every once in a while, James asserts that nobody ever talks about losing with stocks, and every once in a while I tell how I have had 6 bankruptcies, total losses about $100,000, yet do extremely well in the long term in the aggregate with stocks. This is instance 4 or 6. There will be more.

If your goal is to never have a losing position, transaction, bankruptcy, year, and making money is a happy side effect of the main goal, someone like James is the guy to listen to. If your goal is to have the highest probability of the most money after about 4 decades with the least effort, find another guru.

To be honest, most people are in the first camp above, and James isn't an entirely bad person to listen to, but he nowhere near speaks or understands the truth of stocks. He has a world class understanding of the bad possibilities, but heavily ignores and discounts the good possibilities. This serves him and many others well, but is more a reflection on the nature of investors, not the nature of stocks.


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## Just a Guy (Mar 27, 2012)

I e never invested in any of the stocks on James’ list. Many strike me as “fad” stocks...very popular in the headlines, not usually a good long term investment. 

I remember sitting down with a buddy discussing some of the shady things nortel was doing with the financing of the products they sold, yet everyone else was talking about the stock price...guess it depends on what metrics and information you want to base your investments on. Most people I’ve met do it on the stock price, not research. 

I also don’t understand why you’d invest in something like a hisa or gic, especially when Canadian banks offer a 5% dividend and a chance of capital gains. With inflation and taxes, hisa and gic basically guaranteed your losing your buying power long term.


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## cainvest (May 1, 2013)

Just a Guy said:


> I also don’t understand why you’d invest in something like a hisa or gic, especially when Canadian banks offer a 5% dividend and a chance of capital gains. With inflation and taxes, hisa and gic basically guaranteed your losing your buying power long term.


I think it's easy to understand, whether you agree with it or not is another thing.


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## Eclectic12 (Oct 20, 2010)

hboy54 said:


> ... If your goal is to never have a losing position, transaction, bankruptcy, year, and making money is a happy side effect of the main goal, someone like James is the guy to listen to. If your goal is to have the highest probability of the most money after about 4 decades with the least effort, find another guru ...


I'd also add in that tracking how one is doing is important ... I know people who have a knack for buying middle to high then panicking to sell in the bottom tend, followed by avoiding getting back in until it's back to middle to high again.

Then there's people like my Mom who at the time was only willing to go with an index linked GIC in early 2009. As others pointed out, the bank made out well. Compared to the only alternatives she was willing to consider, she made out well. Strong arming an 81 year old into something that's better didn't seem like a good idea at the time. :biggrin:


Cheers


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## Just a Guy (Mar 27, 2012)

Do you seriously view a Canadian bank as a “risky” investment? Now, I personally wouldn’t buy one until a crisis hit, but that’s my strategy and I try to get double digit returns at a minimum, but I certainly would t dissuade someone from buying a bank, even at these prices.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> I e never invested in any of the stocks on James’ list. Many strike me as “fad” stocks...very popular in the headlines, not usually a good long term investment.


I think that's much easier to see in hindsight. How about the tech sector overall? Most of those companies seemed like fads (and still do to me), yet now they're a huge % of the S&P 500 and drive the entire index.

We're probably not going to agree on these points, but I think a lot of this is hindsight. It's very difficult to tell at the time. Canadian railways have performed amazingly well for a long time now. Are they fads? Are we going to feel stupid later for buying CNR and CP at such high multiples, so late in a cycle? How about WCN, a huge up-and-comer in the US & Canada waste and environmental disposal sector. Is that a fad? They've performed amazingly well so far. Similar questions for SHOP (Shopify), also a very significant % of the TSX 60 now, Constellation Software... these are all significant weights in the index, and a lot of people invest in them.



> I also don’t understand why you’d invest in something like a hisa or gic, especially when Canadian banks offer a 5% dividend and a chance of capital gains. With inflation and taxes, hisa and gic basically guaranteed your losing your buying power long term.


Mainly because equities are not fixed income. They have completely different characteristics. You can get the 5% dividend, sure, but you also face periods of 50% (or more) draw down which is a huge loss that many people don't want to face.

Equities don't assure any positive return at all. Fixed income does. In the case of CDIC backed fixed income, the government stands 100% behind the investment so you cannot lose a dollar. With equities, you can lose it all. If Canadian banks ever weaken dramatically and need to recapitalize themselves, you may have unrecoverable losses in equity. This is completely different than fixed income.

Equities are not a replacement for fixed income. They behave differently, have wildly different risks and are not interchangeable.


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## Just a Guy (Mar 27, 2012)

You’ve got to remember, I don’t buy equities at today’s prices, not the hot tech stocks. My strategy doesn’t allow it. I wouldn’t buy things like Facebook or google who don’t make money and are selling for a fortune. That’s the very definition of a “fad” stock to me. Sure I probably miss out on a lot of “fast money” but, as I said before, none of my picks have lost money except for the one pump and dump one which was me trying to cash in on a different strategy. In comparison, the bio stock I bought in 2007 has paid out the original investment just in dividends in less than 10
Years and it now over 300% larger and paying 15% on the original invested amount. 

One could call it luck, but all the ones I bought are similar. Original investment is usually paid out.


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## digitalatlas (Jun 6, 2015)

twowheeled said:


> I don't disagree with you, but you have to admit the sheer ignorance in a thread topic such as this one. Which is not only to dismiss all other strategies, but deem it pointless to even discuss or learn anything about them for all forum members. I mean talk about confirmation bias.


I've been finding the discussion here pretty fascinating so far. I haven't checked it since starting the topic several months ago, and it's certainly gotten more replies than I was originally expecting. Incidentally, I happen to agree with some of what twowheeled says about investing in stocks and he's even given me pause on some previously differing opinions I held, but this quote above is out of line and I'm going to call him out on it for damaging his own credibility.

I didn't ask the original question out of ignorance, or to dismiss other strategies. It was posed as a legitimate question to generate discussion because I really wanted to know what people think; it wasn't intended to be sarcastic. You probably failed to pick up on that.

In fact, the reason I even wonder about this is because over the years, I've come to question the potential of indexing. I have to say that by and large, I believe in its utility, and it's suitable for most people. The idea that one can replicate the market with a relatively low amount of work has its appeal, and I think it served me well as I started my DIY investing career 10 years ago. But this strategy is not without its shortcomings, and have been contemplating moving away (in small steps, if I continue to see a reason) from indexing and more to holding individual stocks (though I have many practical questions about this process, which I may ask in another thread). 

At this point, I see the advantages of indexing (though I play around with about 5% of my portfolio). Statistically, one would return the market over a long period of time. For people who started investing well before ETFs became a big thing, I think it's naive to ignore or disregard the incredible power of computing and technology behind their existence. It's like saying that because you bred your own race horse and you hand pick its food and mates and exercise regimen or whatever, it's going to outrun a car. People think they have good intuition, but that may be true or not, but that's kind of cop out answer when someone tries to articulate the method of their success. 

I also take issue with your assertion that indexers are somehow unambitious in all other aspects of their lives. This is just ridiculous, maybe you have some chip on your shoulder and you're overcompensating by throwing shade at others who differ from you, but it's a highly immature outlook on the world. People go with indexing for a whole wide variety of reasons, and someone talked about limits on a person's time or interest. People have other things going on in their lives, like kids, aging parents, volunteer obligations, work, complex lives that take time away from looking at stocks. I'm really interested in it, and I'm ambitious, but I have huge demands on my time outside of managing my portfolio, hard as it may be to believe, is not always at the top of the list (sometimes I even wish it could be, but it's just not). So I index, but that does not mean I'm content to be middling or average.

And even if I was content to be so called average, so what? Plenty of people are, and if they can be happy and contented, then that's awesome for them. We all become dust in the end, and you can't take your money with you. If you think that because you hold individual stocks and you're doing well, that makes you a winner and indexers are losers...I can guarantee that you are probably not "winning" in all aspects of life. So lay off indexers, calling people "ignorant" for posing a question on a message board.

Anyway, seriously, I'm finding the conversation great and interesting. I hope we can keep it civil. For the record, I do see merits to both sides of the conversation, which I think are exemplified by our two major actors, twowheeled and james4beach =)


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## twowheeled (Jan 15, 2011)

I meant no personal offence to you, I'm saying it is rather foolish to stifle discussion on anything that does not line up with our point of view. I'm also not saying that indexers are unambitious. I'm making fun of the fact that strangers on the internet think they are giving good investment advice to other strangers by assuming indexing is the best option, because it requires the least amount of work and incurs the lowest fees.

I see a pattern repeated. A new investor comes along and asks "I'm a new investor with $x, how should I invest it?" and the response is always "read the couch potato site and decide on your allocations, then buy those ETF's." Why isn't the answer ever "Read market wizards and think about how much time you want to dedicate and what sort of style fits your personality/situation." Maybe most people just don't have the time to read anything but a blog or internet article these days, even when it comes to their life savings.


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## cainvest (May 1, 2013)

twowheeled said:


> I see a pattern repeated. A new investor comes along and asks "I'm a new investor with $x, how should I invest it?" and the response is always "read the couch potato site and decide on your allocations, then buy those ETF's." Why isn't the answer ever "Read market wizards and think about how much time you want to dedicate and what sort of style fits your personality/situation." Maybe most people just don't have the time to read anything but a blog or internet article these days, even when it comes to their life savings.


That's probably a fair assessment. On the other hand the "I'm a new investor with $x, how should I invest it?" person can easily come back with specific questions after they read the couch potato info. It's just a simple starting point for those moving towards DIY investing and for some it'll be the end of the learning road while others will want to learn more.


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## OnlyMyOpinion (Sep 1, 2013)

twowheeled said:


> ... "Read market wizards"...


Only the hot ones - or the failed ones too?


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## Just a Guy (Mar 27, 2012)

I remember when I started investing, my family thought I was nuts. It’s too risky. I didn’t know much, bought a couple of mutual funds and even made a bit of money. 

Then I started to think about investing, read about investing and developed my own, very conservative strategy and did a lot better, to the point where my accountant, bank managers, financial advisors started to ask me questions about my strategy. 

If you don’t challenge “normal”, youll never exceed it. I’m not saying I came up with anything new or revolutionary, but I certainly wasn’t happy with single digit returns or the couch potato strategy. Remember too that, while 50% get below average returns, 50% will also get above average returns. When in school did you aim for honours or 50%?

As for fees or mers, I probably pay less than the majority since I only pay a trade on buying...no rebalancing, no selling my winners to boost the losers, just sit and wait.


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## twowheeled (Jan 15, 2011)

OnlyMyOpinion said:


> Only the hot ones - or the failed ones too?


which ones do you consider failures?


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## james4beach (Nov 15, 2012)

Just a Guy said:


> If you don’t challenge “normal”, youll never exceed it. I’m not saying I came up with anything new or revolutionary, but I certainly wasn’t happy with single digit returns or the couch potato strategy.


I think it's still wise to *start* with normal and make sure you have a solid grasp on the normal, recommended methods before even dreaming of doing something more.

The problem is that _most_ people will overestimate their skill and their ability to trade or manage a portfolio of securities. Overall, most people will (dramatically) overestimate their potential returns.

The market is a brutal place. It's full of ruthless sharks who are all trading against you. Huge investment banks employ thousands of PhDs, some of the smartest people in the world. They will eat you alive. They feed you misinformation, they know your cognitive biases and weaknesses, and they have insider information. This is not an easy place to succeed. You can even plug along just fine for a handful of years, then get absolutely destroyed in a bear market phase. I saw this happen to many people in the last cycle... using various strategies that seemed OK, and then getting wiped out during the bear. I'm serious! Wiped out as in, they have never invested again since.

I've lived through two cycles like that. I saw one cohort get wiped out in the 2000 bear and another cohort get wiped out in the 2008 bear. We'll probably get another round soon.

I strongly suspect that most people have horrific returns in their discount brokerages vs passive index approaches if you count from the very first moment they touch the account. Everyone starts out thinking that because they're smart, that they will "just find an angle that's sensible" or "hunt for great value deals that others haven't clued into yet". It's human nature to think you are smart and others are dumb. But the professional stock and bond market participants are not dumb. They also control the markets; it's their casino.

I think it's perfectly reasonable to steer first time investors into couch potato and index strategies. In fact I think it's irresponsible to tell them they can do much better and get much better returns doing fancy / weird things.


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## Just a Guy (Mar 27, 2012)

Remember though, 50% of stocks actually return above average results. I think the ones who fail usually do something fairly risky, find initial success and then get overconfident, leading to even riskier behaviour. The more I look at my strategy the more I see it resembling Warren buffet when he started out. Buy good companies when they are cheap and hold them. I don’t follow talking heads, I read the actual information produced by the company. Maybe, as a business owner, I have an advantage in that respect. I can sometimes see what is not being said by the way things are phrased. I also check the math, if they are running numbers that I don’t understand there probably is a problem they are hiding. 

The same thing happens with my real estate, I can often read between the lines of minutes because I’m on so many boards, I know exactly what they are trying not to say in a public document (like when there are problems). It comes with experience.

P.S. nothing really “fancy” or “weird” about my strategy. It’s actually more straightforward than most.


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## james4beach (Nov 15, 2012)

Just a Guy said:


> Remember though, 50% of stocks actually return above average results.


This is not true. Among all listed stocks, only a very small number of them turn out to be good performers and it's nowhere close to 50%. The very small number of successful stocks have outlandishly better returns than the majority of the stocks which do badly. If you randomly pick a stock that's listed in Canada it's much more likely to be a loser than a winner:
https://www.kiplinger.com/article/i...stocks-are-stinkers-and-what-to-do-about.html

Obviously with screening and research you can find the stocks with better potential. But if you pick up some arbitrary stock, it's probably going to be a bad one.


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## Just a Guy (Mar 27, 2012)

No one suggested picking random stocks. Face it, you’re afraid of stock picking, you’ll pull up stats of what others do and use that as an excuse. You fear the market, I look for opportunities. My strategy is very similar to the strategy I use in real estate. Look for value on sale and buy and hold. 

Math says, there will be A number above average (either the same number or they perform significantly better) to match those below average, when you add them together, you get an average. If what you said was true, the average would be lower...basic math fact. 

FUD usually holds people back from reaching their potential. You can believe the stats and keep going with GICs and bonds, or you can try something different. Your choice, but if you never try anything different, you won’t get different results. You can write off strategies like mine as “risky”, “weird”, “complicated”, but in reality it’s not, you just want to justify your ideas of investing, that’s fine. 

As for manipulation, I see it all the time, but it’s usually short term. Hard to manipulate the market for a long period. Best way to get around market manipulation is buy and hold. Wait out the short term manipulation. Apple went down a ton in December...today it’s almost recovered. Why? Because by nearly any metric you choose, there isn’t a company on the market that beats Apple. Short term talking heads brought the price down, but couldn’t keep it down. They probably made a fortune...had you held, you lost money for what 4 months on paper...big deal, it’s almost all back in time for earnings.


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## hboy54 (Sep 16, 2016)

james4beach said:


> This is not true. Among all listed stocks, only a very small number of them turn out to be good performers and it's nowhere close to 50%. The very small number of successful stocks have outlandishly better returns than the majority of the stocks which do badly. If you randomly pick a stock that's listed in Canada it's much more likely to be a loser than a winner:
> https://www.kiplinger.com/article/i...stocks-are-stinkers-and-what-to-do-about.html
> 
> Obviously with screening and research you can find the stocks with better potential. But if you pick up some arbitrary stock, it's probably going to be a bad one.


This is a false idea, that to be a successful investor, you need to encounter "good" stocks, and avoid "bad" stocks. Couple that with what could be called the "Rip Van Winkle" error, the idea that you buy a stock, then go to sleep for decades, and then wake up and see how you did.

Consider Mr. Winkel. He could have bought 3000 BBD.B about 20 years ago for about $6, woke up today to find under $3. Clearly a "bad" stock.

Further consider another investor, we won't mention any names will we. He also made that initial unfortunate 3000 share purchase 2 decades ago. But instead of going asleep, he reads the news every day and follows current events and life. At various times, he buys more BBD.B at lower prices, and even sells a few shares along the way at numbers higher than his ACB. He collects a smattering of dividends too such that today he has harvested about $100,000 in realised gains and dividends, and with his current holdings of 162,700 shares, he sits on an unrealized gain of almost $150,000. Not too shabby for a "bad stock". You should see what he has done with some of his other bad stocks too: OSB, TECK.B, ECA, CWL.

To reduce stock investing to trying to find stocks today that are guaranteed to have a higher stock price in 20 years is a fundamental folly that most everyone makes, even and especially academics like the one quoted above. You set yourself up to fight against the nature of stocks instead of working with it.

To be a successful investor with individual stocks you need about grade 12 math skills and control of your fear (and your spouse's fear!). The intersection of these two groups is very small, perhaps 1% of the population, which is why most people belong in ETFs.


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## cainvest (May 1, 2013)

Just a Guy said:


> Remember though, 50% of stocks actually return above average results.





Just a Guy said:


> Math says, there will be A number above average (either the same number or they perform significantly better) to match those below average, when you add them together, you get an average. If what you said was true, the average would be lower...basic math fact.


Wait a sec, are you saving that if you take the average returns of 10 stocks 5 of them will always be below and 5 will always be above the average return value?


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## Just a Guy (Mar 27, 2012)

No, if you read the second quote properly, performance of one stock could balance the equation as well. However it would be pretty easy to see. 

Something has to be above average all the time by definition, unless everything is exactly the same.


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## cainvest (May 1, 2013)

Just a Guy said:


> No, if you read the second quote properly, performance of one stock could balance the equation as well. However it would be pretty easy to see.
> 
> Something has to be above average all the time by definition, unless everything is exactly the same.


No problems, it was that first quote that was possibly incorrect depending on the set and distribution of numbers.


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## londoncalling (Sep 17, 2011)

hboy54 said:


> This is a false idea, that to be a successful investor, you need to encounter "good" stocks, and avoid "bad" stocks. Couple that with what could be called the "Rip Van Winkle" error, the idea that you buy a stock, then go to sleep for decades, and then wake up and see how you did.
> 
> Consider Mr. Winkel. He could have bought 3000 BBD.B about 20 years ago for about $6, woke up today to find under $3. Clearly a "bad" stock...
> 
> To be a successful investor with individual stocks you need about grade 12 math skills and control of your fear (and your spouse's fear!). The intersection of these two groups is very small, perhaps 1% of the population, which is why most people belong in ETFs.


The Rip Van Winkle effect is very true when it comes to stock picking. I must admit I have suffered from a form of it myself. Although I am awake I tend to stick my head in the sand and hesitant to liquidate a losing or bad position. This is stupid. Historical performance although a somewhat helpful tool for evaluation (if used properly) should not be biased. Performance will be indicative of current and future metrics and events.

Over the years(started DIY/ in 2011) I have improved as an investor. I can evidence this based on 3 portfolios (LIRA 2011 no additional contributions, RRSP 2012 new contributions to 2018). I now DIY my TFSA and return is higher than both the RRSP and LIRA but it has only been a couple years and will monitor. My RRSP account has consistently beaten the index YOY while the LIRA has lagged approximately the same. Fortunately the LIRA is almost half by amount invested. I think the key difference is that I have gotten good at evaluating and picking "good" stocks that are oversold and entering a position. 


I review my portfolio and progress frequently. I keep my fees below .5% annually and will strive to lower that amount further. Unfortunately my failure has been to keep stocks that have cut their dividend. Typically, I try to justify the hit by indicating that I will exit on the next pop and never do. As a result, I hold the likes of SGY, CPG,TPH, EGL and CLIQ. Although the amount invested is less than 10% total of DIY portfolio it has impacted portfolio performance. Currently they make up less then 2% of portfolio so have very little impact going forward. I have chosen to keep them as reminders of what not to do. Going forward I have revised my IPS to include removal of a position following a cut (no matter size, historical return etc.). I plan to include some proactive measures to include a re-evaluation of stocks that have not grown their dividend or considerably reduced their payout over time. If anybody has any guidelines that they use in this regard that they could share I would greatly appreciative?

I currently have my "beloved" :stupid::highly_amused: Chemtrade on the chopping block. Currently still above water (approx. 4% annually). Awaiting the next quarterly in May.

AFN (great return, no dividend increase since 2010) is also under review. The payout is less than 50% and they have done a great job to expand their market cap and international exposure. Great total return since 2012 but where is it going to be in 5? 10? 15years? 

Most investors realize buy and hold is dead and buy and monitor is a better strategy. I have sold "bad" stocks for a profit in the past (either after I felt they had ran up too fast or after the reasons for holding had changed). However, I had not implemented hard and fast rules. Is this the way to go? I think I may end up exiting a few positions that may eventually do well over time but more often than not it should help with capital preservation. I have missed some "good" buys being greedy on entry price but always find another opportunity. There is an opportunity cost to holding an underperformer.


I apologize for the lengthy post but I wanted to point out the fact that stock picking takes time to learn and implement successfully and requires constant improvement. Is the time worth it? That is as dependent on 
the individual.

Cheers.


To bring it back on topic I could comment here (or other numerous threads) on the stock picker vs indexer discussion but I feel those two camps are fairly entrenched.


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## kcowan (Jul 1, 2010)

londoncalling said:


> Most investors realize buy and hold is dead and buy and monitor is a better strategy. I have sold "bad" stocks for a profit in the past (either after I felt they had ran up too fast or after the reasons for holding had changed). However, I had not implemented hard and fast rules. Is this the way to go? ..


My IPS has evolved. In 2002, I was a momentum stock picker picking them up after a trough when the upward motion was established and selling before the turn down. It worked well but after 3 years, I had made enough to relax. I also got sick of paying capital gains plus spending the many hours at it. 

I still hold 2 of them: LULU and AAPL. My IPS excludes momentum stocks so I have taken a pass on cannabis, bitcoin, Google, Amazon, Facebook. I sleep easier now.


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## james4beach (Nov 15, 2012)

The only individual stock I still have from many years ago is BRK.B and this is because it's a sufficiently diversified business to count as a "mutual fund" of sorts.

Over the years, I have tried all kinds of ad hoc stock investments. I bought stocks based on fundamentals, I bought promising looking companies, sometimes I speculated, I analyzed financial statements and looked at business conditions. It was fun... no question it's fun... but it was also a lot of work. I even successfully navigated through 2008, ultimately making money during the roughest period -- _which was downright thrilling_.

I've been buying individual stocks since 2003 so I have about 16 years of experience with individual stocks. Most of them held for long periods; I never was a day trader.

However -- and I only realized this after many years and after I analyzed my trade records -- I would have actually been better off if I used an index based asset allocation approach. It turned out that picking individual stocks was working out OK, but performance was quite a bit worse than the index average.

After I came to that realization (which was painful) I stopped doing ad hoc stock trades. These days I mostly index. I also do some stock picking, but I have tight controls over it, routinely evaluate my performance, and have strict rules on diversification and risk management. I also do a bit of trading, but this is guided by a software system I created so it's extremely methodical. The software navigated the last bear market like a champ, so it actually has a pretty long track record.

Some may point out I'm being a bit hypocritical since I endorse indexing but do some stock picking & trading myself. This may be true, but the non-indexing I do is still awfully close to indexing (and so far has performed about equally). I would describe what I do as fun little variations on indexing... it keeps me challenged and entertained while not straying too far from indexing.


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