On
the individual stock side, we sold Bitauto ($ BITA) and LifeLock ($ LOCK) for decent share price gains of 36.7 % and 13.8 % respectively.
Not exact matches
The other
side of the debate would argue that
individuals who don't know how to select a sector's best
stock are better off investing in the index as a whole to at least gain some form of exposure.
Of course, there is always someone on the other
side of each transaction; in general, these are financial institutions and professional investors, who are ready to take advantage of the mistakes that
individual traders make in choosing a
stock to sell and another
stock to buy.
We still have two short positions in our model ETF trading portfolio, but the majority weighting of our swing trades (combining ETF and
individual stock positions) remains on the long
side of the market.
The lack of substantial bullish follow - through in leading
individual stocks in recent weeks, the absence of leadership in most ETFs (other than international ETFs), and the bearish pattern on the weekly chart of the S&P 500 Index (below) are all valid reasons to avoid the long
side of the market now.
If you're building up the equity
side of your portfolio entirely based on
individual stocks instead of funds, it's a good idea to try to spread your holdings fairly evenly among 30 or more
individual stocks, so you're not unduly impacted if serious misfortune happens to particularly impact one or two
individual holdings (such as what happened to Nortel in the 2000s).
[
Side note: the Born To Sell screener has an «Only ETFs» check box that saves you time in finding ETFs to write calls against by removing
individual stocks from the results table.
For disclosure, just like how I'm a
stock picker on the equities
side of my portfolio — I also buy
individual bonds, coupons and GICs in my fixed income portfolio.
Along this 0 % to 100 % line, your
individual stocks, equity mutual funds, and
stock ETF assets would be assigned to the left hand
side of this line or from 0 % to up 70 %.
Instead of looking at
individual stocks, now I might be focusing on asset classes, making sure I'm diversifying with 12 or 14 different asset classes — small companies, value companies, domestic, US, international, even on the bond
side making sure I'm spreading that risk out into all different types of bonds.
On the flip
side, you can choose to sell
individual stocks, funds, or Pies.
I've never joined the debate about
individual stocks vs. index funds because I've never chosen one
side or another.
We leave it to others to examine whether the damage is greater on the long
side or the short
side, and whether the damage is more or less severe based on the actual valuation levels of the
individual stocks in these portfolios.
AUDIENCE MEMBER: Assuming it's behavioral and not risk, do you have a sense that the other
side is
individual stock pickers or other professionals that are stupid?
Kahneman makes essentially the same point I made in this thread on June 11 when he says in his book, «Of course, there is always someone on the other
side of each transaction; in general, these are financial institutions and professional investors, who are ready to take advantage of the mistakes that
individual traders make in choosing a
stock to sell and another
stock to buy.»