Retiring Early

Tuesday, February 20, 2007

Owning individual stocks

I own individual stocks, how about you? A lot of the PF blogs I read have authors who appear to primarily align themselves with mutual fund investing. While I agree that mutual funds have their place (primarily for indexing, IMHO), I believe that it's very possible to beat (if only slightly) the market with some well-researched, value-based individual stock picks. In the long term, how can you go wrong with buying undervalued assets??

Whether you agree with me or not, you're certainly entitled to your opinion. As I was thinking through this last night, I wondered how many of my readers do actually own individual stocks, and whether or not it is an interesting topic for me to post on. I have been spending a lot of my time lately thinking through how I am going to play the correction that I continue to believe is imminent. So there you have it. Lets call it "Fin_indie's Tuesday morning question" -- leave a comment and let me know if you own individuals or not. And if you're feeling adventurous, let me know why or why not.



  • At 2/20/2007 2:23 PM, Blogger mOOm said…

    I own very few individual stocks which aren't closed end funds. If you don't count stocks in the financial sector there are very few left. These are my individual non-financial stocks:

    ANN.AX - surgical and other gloves, condoms
    PWT.AX - telecom
    SYB.AX - healthcare
    CRS.AX - bankrupt goldminer

    That's it I think.

    I don't think I have an edge in picking individual companies that are going to outperform. I prefer to select managers and trading using technical analysis - for the latter makes more sense to trade indices rather than individual stocks. Occasionally, I do see a good deal like PWT and invest in it. Occasionally my picks like CRS blow up.

  • At 2/20/2007 5:35 PM, Blogger pfstock said…

    I do own individual stocks, as well as ETFs and mutual funds. Investing in individual stocks requires a greater degree of research and diligence than investing in funds. I do think it is possible to beat the market by a wide margin by picking individual stocks. However, it is also very possible for things to go catastrophically wrong.

    You make it sound as if picking individual value stocks is a virtual cakewalk... It is not! One commonly used metric for determining if a stock is "undervalued" is the P/E ratio. Price is determined by the market, but earnings is reported by the company. How often have we heard of companies restating earnings, of accounting irregularities, or even outright fraud? So a stock that you think is undervalued may not actually be.

    Having said this, you should not expect that your average blog reader will be able to choose individual stocks. It is a skill that takes time and patience to develop. Perhaps you could share some of your own stock picks with us...

  • At 2/21/2007 6:10 PM, Anonymous indio said…

    I own individual stocks that my financial advisor selected for me - copper mining, natural resources, car manufacturers, etc. His picks for the past 2 yrs have definitely outperformed the market. His recommendations are based on PE ratios and other factors he researches. I'm beginning to prefer his picks over ETFs.

  • At 2/22/2007 8:22 AM, Anonymous finance girl said…

    hi there, we own company stock (MSFT) but no other individual stock. I like the whole ETF concept and likely will buy more now that I have "the bug".

    I think I shy away from individual stocks because I don't want to have to watch a particular company that closely, which I feel I would have to do to make sure my stock was still doing ok.

  • At 2/23/2007 7:47 PM, Anonymous Cali rugger said…

    I am a bit of contrarian, and have had tremendous success buying established companies at lows and dips.

    I have had great gains on YHOO, CAKE, FAF, LYO, and RAD (double bagger) over the last year follwoing this strategy.

    My portfolio includes 7 individual stocks including the 5 above. My lowest returning stock now is +10% (BBY).

    I have been investing in individual stocks since 1999 using this strategy with great success.

    I keep my retirment accounts in MF's.

  • At 2/24/2007 9:10 AM, Blogger fin_indie said…

    Thanks for all the comments! Good stuff. Let me first say that I didn't in any way mean to imply that finding value stocks is easy. Research on these is what makes up the majority of my time spent investing, but the reward (for me at least) has been huge.

    Also, let me say that when I talk about picking stocks, I'm mostly talking about the long side with an occasional short term trade thrown in to keep it interesting.

    Moom: I don't necessarily think I have an edge either, but as the rest of the street is chasing momentum stocks for quick returns, solid companies with good management that become out of favor can be very cheap. Those are the stocks I want to be long.

    PF: I agree that things can go catastrophically wrong and I defend against this with good diversification, time honored research (well beyond P/Es) and investing discipline. You have to watch your investments if you're going to play this way and if things start to go wrong, or the stock price hits one of your pre-determined exit prices (high or low), you have to get out. It takes discipline.

    Indio: Sounds like you have a good situation. Watch your advisor's picks as the market turns, however. Picking good stocks in a bull market is like shooting fish in a barrel. The true test is whether s/he makes you money in a down market.

    finance girl: Your approach is totally fine: if you don't want to have to watch individual stocks, indexing or managed MF's are a fine way to be in the market.

    cali: Sounds like you and I are similar on this front. I tend to be more contrarian than a momentum investor than most, when it comes to investing in individual stocks. You have had some good picks over the years -- congrats!

  • At 2/26/2007 10:56 AM, Blogger moneymonk said…

    Same as pfstock, I own individual stocks as well as mutual funds and ETFs.

    But my individual stocks are not many
    I have 4--- COP, MSFT, BHP and LOW


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