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Stock Investing 2016 – Picking Stocks | Common Sense Investing

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Stock Investing 2016 – Whats The Best?

Today I want to talk to you about owning individual stocks, and no, I’m not going to tell you how to do it successfully. This is not that kind of channel.

Referenced in this video:
Do Stocks Outperform Treasury Bills? – https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447

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39 Comments

  1. Shawn Tackaberry
    July 31, 2021 at 12:37 pm

    I love the chuckle in the "holding stocks" comment. Made me laugh. I do hold some very small positions in stock but I consider this gambling for the most part. Makes fun water cooler talk. However my MSFT is going places. I have a good feeling about that one. /lights cigar with $100 bill while maniacally laughing

  2. wildreams
    July 31, 2021 at 12:37 pm

    Irrationally hold individual stocks seems to benefit some of the most successful investors in the world: Warren Buffett holding on to Berkshire, Charlie Munger holding on to Costco, Bezos holding on to Amazon.

    So I will continue to irrationally hold on to some of the stocks that I have bought for a long time: Shopify, Tesla, Trade Desk, Google, Arista Networks, Square etc.

    Time will tell if I made the right decision, so far it has been great 😀

  3. Ahmed Roman
    July 31, 2021 at 12:37 pm

    I am guessing this analysis assumes that an individual picks individual stocks randomly without knowledge of the specific circumstances of the relevant companies. The results are likely to change significantly if this assumption is replaced by an expert in a particular field investing in companies relevant to his/her field. For example, some who can read and understand the results of the studies of a particular pharma company and how its results compare with other companies working on very similar drugs, and can make a reasonable estimate of how undervalued the underlying stock is, does not adhere to the assumption mentioned above. Such individuals picking stocks in this manner according to their expertise would probably not lose money on average and probably should not underperform the market. On the other hand, such experts are rare and so do not represent the population.

  4. Asad Laith
    July 31, 2021 at 12:37 pm

    Benjamin Graham said that in the short-run, the market is a voting machine, and in the long-run, a weighing machine. So, value investing is trying to benefit from a situation, in which a company is wrongly voted out in the short-term, because, hopefully, sooner or later, the actions of that company should speak louder than words, and it will be voted in again. But this requires knowledge, research and, above all, a rational temperament.

    But one thing to bear in mind is, most professional active investors are under tremendous pressure to show short-term results (quarterly, annually etc.). This pressure make them lose the power of patience, which I think is very important for a real value investor. That's why, in my opinion, most active managers underperform. They don't have the liberty to stay still, when opportunities don't present themselves.

    So, perhaps the findings of the studies that you're referring to are not accurate at describing individual value investors, because quiet individual value investors are free from the pressure of having to outperform quarterly, annually etc.

  5. john calligan
    July 31, 2021 at 12:37 pm

    I'm 45/45 on Coke and J&J because everyone is going to keep getting fatter and sicker. I hedge by 10% in Peloton just in case.

  6. Derek Droessler
    July 31, 2021 at 12:37 pm

    So I assume the alternative is index funds and ETFs? Many thanks from the US! 🙂

  7. Antoine Pelisse
    July 31, 2021 at 12:37 pm

    Thinking like a troll, but actually being serious: Are you actually suggesting that one should short random stocks because they are likely to be "absolute losers"?

  8. Gamma Ray
    July 31, 2021 at 12:37 pm

    I own individual stocks but only if they're on the home market (easy to follow for updates), after extensive research and I spread the investment equally to around 30 of my favorite creating somewhat of an index of my own which I update quarterly.

  9. Alexandru Carp
    July 31, 2021 at 12:37 pm

    Hey, Ben! I'm in the process of binge watching all you videos, great stuff 🙂
    I totally agree with you that speculating with individual stocks is irrational. As well as being biased to holding stock granted by your employer. But what to you think about going long on individual stocks, after a thorough research and due diligence? Like reading through annual reports, performing a DCF calculation and buying with a consistent safety margin?

  10. Schroeder Luck
    July 31, 2021 at 12:37 pm

    That's a clean shirt

  11. Ken
    July 31, 2021 at 12:37 pm

    Just a small point to add to one of yours:

    Great point on the "if you would not buy more of the stock you own at the current price, you should not keep it".

    Buuuut I have to mention there is a perfectly good reason to keeping it if it would still grow and produce value, but there is simply a better place to invest "new money", and that reason is of course taxes. While uninvested money is not required to pay taxes, if you have made a gain in a position, selling it means losing at least 15% of it to taxes. In this case, it often can make more sense to keep your current position to avoid paying the tax (for now…} and instead have that 15% extra cash continue to work for you in the same company. Then invest your "new, yet to be invested money" in whatever you determine to be a better position at current prices.

    Imagine you made an enormous profit on a stock such as buying Tesla a few years ago. You'd be up over 10x so the majority of the value of your position would be liable to be taxed. Imagine you had 100k worth of Tesla, then the moment you sell you now have 85k left to invest while Uncle Sam gets his cut. Don't forget state taxes…and this is assuming you held the stock for at least a year and a day.

    In a tax privileged account like a ROTH IRA these days with no trading fees, I can finally cautiously agree with your statement.

  12. J Bonham
    July 31, 2021 at 12:37 pm

    Hahah best video ending of all of them so far, really liking these videos and The Plain Bagel for no-frills, non-sensationalist information, much needed on this topic

  13. Elia Wise
    July 31, 2021 at 12:37 pm

    An innocent question:

    I see that people are comparing `specific stock selection` against the `sp500 index`,

    and the recurring claim is 'the index is winning' and if not it is completely lucky.

    Obviously if you chose random stocks then the claim is correct,

    but if you chose stocks wisely?

    Then the claim is, because most people do not have the tools to choose wisely (and even if they think they choose wisely, they probably just give themselves too much credit), so they can be treated as a random choice, i.e. the index wins.

    So far everything makes sense and clear, but suppose I make a sp100 portfolio

    i.e. The 100 strongest stocks in the sp500, in which case it can not be argued that my choice is more random than the index,

    because I am actually based on the same criteria, I just focused on a smaller group of stocks,

    Or I build some portfolio based on the index only that the parameters are slightly different (I assume that the number `500` was chosen quite by chance, and maybe if a little research I can find a number that gives a more successful result)

    In that case, if I did enough comprehensive research there seems to be a good chance of getting better results than the index, or at least no less good.

    Definitely it cannot be argued that I made a random selection.

    Note, I'm not writing this to argue – I really do not understand Enough.

    I just think there is a basic logical failure assuming that a portfolio building is random therefore you will always lose compare to the index,

    because I can build an index-based portfolio so that if my portfolio is random than necessarily the index is also random.

    Please correct me if I'm wrong 🙏

  14. Robin Watts
    July 31, 2021 at 12:37 pm

    Great video as per! Have you ever released a video where you discuss a method of index fund investing that’s considered to be the best? There’s so many to choose from across the globe, it can be hard to settle on a selection.

    And also it would be interesting to hear your thoughts on the ‘Magic Formula’ from ‘The Little Book That Beats The Market’ if you are familiar with that.

  15. Benjamin Arya
    July 31, 2021 at 12:37 pm

    Sure, the odds are stacked against you. But I don’t think that engaging in risky practices is “irrational”. Starting companies, changing careers and opening yourself up in relationships are all highly risky and “irrational” practices with a low absolute probability of success. But the best things in life come from taking risks.

    If you have big balls, a high level of intellect, a high risk tolerance and a track record of understanding and predicting the future, you can indeed invest in individual companies over the long-term with the expectation of high returns. We’ll circle back in 10 years

  16. Nicholas Thompson
    July 31, 2021 at 12:37 pm

    Ben, I understand the academic literature points to low cost, diversified index funds as the most efficient way to structure a portfolio, but what do you say to people who want to achieve a net worth that requires more than the standard 7-10% of index funds? What are the best options beside investing/gambling (depending on how you look at it) in single stocks? Aren't the odds better than, say, a lottery ticket? Thanks.

  17. TheLKStar
    July 31, 2021 at 12:37 pm

    Ben, I'm not sure what to think since I trust you but I made a killing for over a year now by picking stocks. I look at what the companies are doing, the stock price is secondary. So, if a company is doing better than the market seems to be pricing it at, specially comparing to others in the sector, I buy it. By now I'm right 17 out of 17 times… Most notably 3 gave me 3 digits returns in a few months and I tripled my whole portfolio in about 8 months…

    That with the fundamentals to go against market panic seems to be a safe longterm bet for me. I would like to know what you think about it since I'm your fan. The last few weeks I've put my toe in the water for currency exchanges because I saw an oportunity (some currencies falling too fast due to panic) and I already made significant returns…
    I'm either a natural or extremely lucky to be so consistent with it until now.

    The elephant in the room might be that coronavirus was a big contributor to my success, since emergent markets fell WAAAAAY too much when it hit, it was ridiculous, the market moved as if the world was ending and I just bought at a big discount.

    To summarize my strategy is to evaluate companies real prospects and growth capacity and buy them if they're undervalued compared to the sector. I consider the market to be constantly too pessimistic or too optimistic, so I usually go against it. Finally, I diversify when the opportunity presents itself, I don't try to predict when sector A will fall by 40%, but when it does (and there seems to always be something like this happening somewhere) I do some research and go into it.

  18. Mihai Mera
    July 31, 2021 at 12:37 pm

    2:25 "It is important to understand that stock prices are random"

    This is the only line on your channel that I take issues with. Like, dude, what? Stock prices aren't random, I can reasonably expect for a company to have a PE of 10x to 20x at maturity, this makes the stock price tightly linked to the earnings of a real company. It's the earnings that I'm trying to predict. For the short term, sure, prices are random-ish, making it a "bigger fool" game, but for the long term, stock prices will regress to a sane multiple

  19. Roger Zulpo
    July 31, 2021 at 12:37 pm

    Ben Felix: hello, Im a fund manager, you can't beat me or the Index despite any amount of work or research you do , therefore you should give me your money to manage and pay me fees.

  20. Can Başaran
    July 31, 2021 at 12:37 pm

    is this assuming that stocks are selected randomly ?

  21. AlexXx
    July 31, 2021 at 12:37 pm

    From this video I learned that Buffet and other top investors irrationally hold individual stocks. Idiots, they should invest all their money in ETF!

  22. Zonno5
    July 31, 2021 at 12:37 pm

    Opening positions is easy. Knowing when to close is impossible.

  23. Nagabro
    July 31, 2021 at 12:37 pm

    instructions not clear, I've started buying stocks based on what my uno card deck says to me

  24. Jacorky Gu3
    July 31, 2021 at 12:37 pm

    Endowment Effect. If I bought a stock that I would not buy at its current price, I should sell it. Then why ever hold any stock unless you are constantly buying it? For example, Buffet owns Am Express stock and hasn't bought any in years. Shouldn't he sell? The dividend yield is miniscule (1.2% at current pricing) What about the endowment effect in index funds? I own S&P 500 index thru Schwab but I won't buy now because I believe it's overvalued. Shouldn't I sell it if I wouldn't buy it at its current price, i.e choose the cash instead? OMG this video gave me a headache.

  25. Roggle
    July 31, 2021 at 12:37 pm

    This guy gives good advice if your a robot. Most of investing is human nature, your own human nature.

  26. Stefan Amisten
    July 31, 2021 at 12:37 pm

    Take a look at GAN on NASDAQ. This guy is just trying to sell his own fund services.

  27. Michael Johnston
    July 31, 2021 at 12:37 pm

    You depress me man. Your videos suck all joy out of everything you speak about.

  28. José A. Tirado Galán
    July 31, 2021 at 12:37 pm

    These videos is full of interesting facts but I think there is a lot of information missing. If you pick a random stock, obviously is pure luck, but what if the stock that you picked is based in actual company value Vs stock price?
    There are different formulas to value shares, and indeed in history many stocks has gone to zero, but this most of the times is a gradual process, and if you reevaluate your portfolio periodically, you should be able to reassess if it's time to sell a company in your portfolio or not.
    I mean there have been multiples investors that have been able to beat the markets for decades, so that cannot be luck

  29. Joseph Jones
    July 31, 2021 at 12:37 pm

    Is it possible to overcome systematic risk with an all weather portfolio (i.e. with proper allocation)?

    Example I was think of was the Ray Dalio All Weather approach?

    30% VTI – Total Stock Market
    40% TLT – iShares 20+ Year Treasury Long term Bond
    15% IEI – iShares 3 – 7 Year Treasury Intermediate term Bond
    7.5% GLD – SPDR Gold Trust (commodity Gold)
    7.5% GSG – iShares S&P (Commodity Broad Diversified)

  30. csr y
    July 31, 2021 at 12:37 pm

    Like other comments mentioned, holding individual stocks is not considered as the long-term investment. It's more treated as the money for gambling and entertainment purpose. But many people bet majority investment portfolio on individual stock which is definitely not a good idea.

  31. fungjungkung
    July 31, 2021 at 12:37 pm

    It can make sense to own individual stocks. You give up your voting rights in companies that hold through an index to the fund manager. Also, if it is true that stock returns follow a random walk, then picking 20 stocks by random and equally weighting them should follow the overall market 95% of the time, 30 stocks randomly selected would follow the market 98% of the time. IIRC, this is based upon the error of random sampling of a population following a Gaussian distribution. If you look at the stock pickers, the ones who diversify well, their portfolios generally follow the S&P500. Burton Malkiel, an economist and proponent of EMH, stated that there is real evidence of temporary market inefficiency and that owning some individual stocks makes sense to take advantage of market inefficiency as it arises as long as the majority of your money is in index funds. Right now, a good example IMO is intel stock, which appears to be the most undervalued stock in the Dow based upon its ROA and P/B ratio

    I have been able to create my own portfolio of individual small cap value stocks that has greater factor exposure to SMB, HML, RMW, than VBR when performing factor regression analysis in portfolio visualizer. So, yes it makes sense to own stocks, but as a general rule, no individual stock should be more than about 5% of your portfolio, and know that portfolio returns are driven by the market and factor exposure of the overall portfolio rather than the individual stocks.

  32. אמיר שאג
    July 31, 2021 at 12:37 pm

    What do you think about a company founder holding his own stocks? Let's say elan musk on tesla or jeff bezos on amazon, according to your rational?

  33. Commando303X
    July 31, 2021 at 12:37 pm

    I fear even Jack Bogle (whose work and commentary I greatly appreciate) might have find some of your notions to be excessive.

  34. Commando303X
    July 31, 2021 at 12:37 pm

    Some specific replies:

    2:24: "[It] is important to understand that stock prices are random." The direction in which a stock's price moves in ten minutes, ten days, or ten months, is very much unpredictable; but, your bold statement about overall randomness in the cost of a company is flatly misguided. Think of it this way: index funds, in essence, are founded upon the price discoveries of large baskets of shares. If share-prices do not, over time, move in line with corporate successes or failures, there is no rational or legitimate reason whatsoever to feel that an index of these underlying securities will perform positively in the long run.

    4:00: "Any investor [who] owns an individual stock is over-confident […]." As an accusatory statement, this simply is repulsive in its dismissal of the work it takes to try to understand a business and predict its future earnings (including whether there even will be any).

    5:24: "If you would not buy more [stock] at the current price, you should not keep it." I concur greatly with the spirit of this encouragement; though, I would lend the pragmatic counter-balance that taxes and fees must be taken into consideration when deciding whether to hold or to sell a position. To find an incrementally higher gross return by shifting from one investment toward another, might nevertheless yield a net loss once all taxes and trading-fees have been meted.

    I find that on your channel you often champion the virtues of index-fund investing — and, I not only agree with this posture, but also cheer your generally prosaic and reasoned expression thereof. Having said this, your remarks sometimes carry a palpable chagrin for investing in the very businesses upon which index-returns are delivered, and too upon the method of price-discovery without which, ultimately, there would exist no public corporate-ownership, and ergo be no such thing as an index fund.

  35. Ramix09
    July 31, 2021 at 12:37 pm

    What if you really like the stock though?

  36. Petar Z
    July 31, 2021 at 12:37 pm

    I don't know if I can really agree with this message. You definitely make good arguments, but there ARE opportunities to buy stocks at moments when they are grossly undervalued. I believe it is possible to spend the time to analyze a company, the industry they operate in, and identify if the intrinsic value is being mispriced by the market… you can't always pick the winners, but you don't always have to either.

  37. Pranav Merchant
    July 31, 2021 at 12:37 pm

    I'm an Indian Investor. Sold all my shares. Moved to an Indian index.
    Thanks…🙏

  38. rejoice5-HT
    July 31, 2021 at 12:37 pm

    Can't stock picking still be rational if you know about the risk and distribution of outcome but still choose to pick stocks because you prefer high risk & high reward over low risk & low reward?

  39. Tim Cronk
    July 31, 2021 at 12:37 pm

    Ive had about 1/2 my portfolio in individual stocks. Im going to change that to less than 5 after watching this. I do wonder if this accounted for dividends?