A few years ago, I commited a few thousand dollars to “play money” with which I was supposed to use to learn to become a stock market wizard. I later increased it to $5,000. I learned some basics like the different types of trades, bid/ask spreads, P/E ratios, growth rates, and started buying and selling stocks in $500 increments ($5/trade, so 1% commissions in and out). I really never got around to learning anything in-depth, as I started reading numerous books that convinced me that it was highly unlikely I could ever beat the market over the long haul. Not impossible, but unlikely. Although I read a lot of various investing sites that talk about individual stocks, none of them have really convinced me otherwise.
So I sold all ten of my positions today, with an end balance of around $5,600. I am now solely invested in low-cost mutual funds, except for a few partial shares from Sharebuilder bonuses and some reverse-split shares that hopefully will be cashed out soon. I will probably get back into individual stocks with a small portion of my portfolio later, but only after putting in some time to learn more. If I don’t learn, then I won’t buy.
Here were my ten stocks sold today:
BUD – Budweiser
RIN – Rinker Group
VNQ – Vanguard REIT ETF
PML – High Dividend Closed-end ETF
PFN – High Dividend Closed-end ETF
PFE – Pfizer
INTC – Intel
AEG – Insurance
MSFT – Microsoft
YHOO – Yahoo
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Its actually a good idea to completely research than to buy in on information only. It looks like you did OK with your play money. Did you compare this to the S&P 500’s return for the time held? and compare to the return of your low-cost mutual funds. Although not an apples-to-apples comparison, it would be good to know.
I’m down on the year, mostly due to one trade that didn’t have the stop feature available. I have the incentive of an investment loss carryover, so any gains I can find are tax-free. But that doesn’t make gains easier to find. I favor battered market leaders with good dividends when the sector or overall economy seems to be turning up. This is very conservative hopefully. 3% would be fine, because 2% is a good dividend and that competes with 5% from CD’s taxed at the income rate.
I had done the same. The greatest gains from equity investments come from the willingness to purchase more when the markets are down.
With individual stocks, I know I could never do it because when the future of the company is gloomy, thinking of Enron would prevent me from investing more.
But with broad based index funds like the total stock market index fund, I am willing to invest more in down markets because I am very confident the market will eventually come back.
I went to London recently and ate the best Indian food of my life. The restaurant is called Clifton’s and is close to a popular college strip with restaurants, so it is very affordable. I highly recommend it. If I remember correctly, it ended up being $80 for three people.
http://www.viewlondon.co.uk/info_Restaurant_9926.html
I beat the S&P 500 in 2005, and have lagged so far in 2006. I’ve owned stocks since 2001, and my “outperformance” from 2001-2003 was mostly thanks to not owning any tech stocks.
When ever I hear reasons not to own individual stocks, the most common example I always hear is about enron. There are plenty of people who made a lot of money off of eron. I agree with you jonahan that the more you read the more you will be convienced that mutual funds are a better bet than individual stocks.
It does seem a lot of people who get into stocks really do not have any education into how to invest in stocks and that’s how so many lost money in Enron. A family member of mine lost half a million dollars in the stockmarket during the last bear market, but this family member didn’t have any education in investing at all.
One benefit of stocks and ETFs is the strategy of trailing stops. If you even put a 10% trailing stop on Enron a year or even 6 months before it started to fall you’d have made out very well. It’s amazing how many people don’t have any education in investing, then they buy google, walmart or microsoft and as soon as it does bad they pull out or some broker sells them a sure thing and then in the year 2002 half their money disapeared and if you ask them if they had a stop loss order they look at you with a puzzled look on their face.
Jonathan, I recommend deleting Wojtek’s comment – it’s spam.
As to your decision to sell individual stocks – it’s a wise one. I only have one stock left that I’m hanging on to. I’ll set it next year to take the capital loss against ordinary income (up to $3k per year) if I don’t have any other gains.
Everything else is either lifecycle mutual funds (I will shift to low cost index mutual funds) and possibly ETFs in taxable accounts.
Regards,
makingourway
I am considering selling all my individual stocks too and mostly they are tech stocks. Is it worth waiting to recover some lost or just cash in my losses and seek other investments with it? I keep telling myself it will get better.
makingourway – I don’t think it’s spam, I think Wojtek just commented on the wrong post and meant to add it to my London post.
Maria – That’s the thing. I wait to “break even” as well. But that’s just a pyschological price point. In the meantime, if you had cashed out and invested in something more diversified, you could have done a lot better.
Or you could have done worse, too. 😉 But in the long run I think it’s much more likely you’ll do better.
Jonathan,
I understand about not wanting to invest unless you can put in some time to learn.
I originally saw a product that would tell an investor when ot buy and sell a stock. It sounded just what I was looking for, the problem was that you needed time to study which stock to buy. Once you did that, it worked like a charm. 🙂 With a wife and newborn, the time wasn’t there.
Luckily the same people came up with a product that provides the items to buy, and when you tell them some specific of how you want traded will tell you how many to buy, and what buy/sell points to enter with the broker. And as for learning, its easy to use.
In case your interested, the returns beat anything I’ve been using in the past.
For most people mutual funds are the best choice for investing because of diversification, rebalancing, etc which if you try to do with stocks using small amounts of money the commissions will kill ya. A rule of thumb I’ve often heard is no single stock should be more than 5% of your portfolio – with small amounts of money that’s hard to do…
Even ETFs have a threshhold of money where no-cost mutual funds are a wiser investment.
Rule of thumb I’ve heard is that until you have 100K in investments you shouldn’t be investing in stocks.
Another thing about buying and selling stocks is whether your goal is to “trade” or “invest”. Trading – short term (less than 3 years) buy low sell high is perhaps the riskiest way to make money with stocks and takes the most discipline. For each stock you own you need to keep an eye on it – which takes time. While diversified investments can be reviewed much less often since the fluctuations and potential for loss are so much less.
On balance, if you want to be the “automatic millionaire” over time – mutual funds are the way to do it. If you do like being more hands on, taking a little more risk, and putting in day to day work, there’s nothing wrong with putting a small percetage
I’m with you. The MAJORITY of my money is in indexed mutuals with low expense ratios.
I keep a couple stocks, but mostly just for entertainment value.
Hazzard
All of my serious retirement savings is in index funds. But I have a small portion available as “play money”, too. I just started with this money in January. I don’t trade often, and when I do, it’s sort of Buffet-esque (but with a couple hours of research instead of years). That is, I buy a good company that’s down. So far I’m up 28% for the year, which makes me nervous. I’m chalking it up to beginner’s luck!
Which brokerage are you using now? I was actually thinking about going the other way, from index mutual funds to ETF’s. I have a bunch of money in SWIPX and the expense ratio is a lot higher than VTI’s 0.07%, so I was tempted, but I thought about the $12.95 commission that Schwab is going to charge me to execute the trade (maybe it’ll go down in a few weeks with the BoA price war starting)???
How long do you hold your stocks before you sell them ?
Well spoken Jon. I agree, although personally I?m more willing to tolerate some risk so I?m 100% in equities (no bonds). However, for the amount of effort and time that I put in I?m disappointed with my returns. If I didn?t have the time, I would do mostly ETFs. I?d rather have ETFs than low expense mutual funds because of the tax benefits and other advantages like being able to buy intraday. I would split between small/mid/large cap and have some in emerging markets. And money you need safe I would recommend CDs. That?s my 2 cents.
That forexliberty.com site looks like an expensive Mary Kay’ish sponsor/representative/referral pyramid scheme to me. It?s not for me, but I?m always curious if ?easy? trading systems like that work.