Recently, Vanguard released a research study discussing about index funds vs buying few stocks concentrating on the performance side:
https://personal.vanguard.com/pdf/ISGITO.pdf
It is interesting how the blogosphere gave further arguments on index funds vs focusing on timing vs looking at few stocks. Easily said than done. If we see in 2019 who is good and were we able to predict that say in 2009, even in hindsight it is a tough ask. There is index funds on one side and there is retail companies like Costco or Walmart, utilities sector, healthcare sector, pharma, finance ( which was coming off the recession ), tech sector and so on. Nothing shined particularly bright sector wise. Company wise there is an Apple which actually did well post 2009 when the talk of the town was it was past its prime. Which is also correct since Apple did not have any blockbuster product since then and it is just running off the iPhone launched in 2007! A google could be argued as having a sound strategy but then they did so-so overall. A facebook or twitter? New ones like Uber or airbnb which still have to go to IPO stage as of this writing? Even a fast paced tech sector has lots of delays.
Granted, there are others who went the whole nine yards and maybe performed well. But in the grand scheme of things that is just looking for performers or non performers in a stack of hay. Rather just purchase the whole hay ? One strategy that I found useful was to diversify to real estate as well as put the money in some sort of bonds or safe harbor. That atleast gave me lots of good sleep. Diversification is key and very important. Market timing in stages is also important. Getting some sectors and owning whole market is also key. Then focusing some money on few top performers is also not that bad strategy. That said, be ready to lose some money or focus on duo-polies and multi-polies. But that is again a tough ask in tech sector.
If I had 100 bucks to invest, I would still maybe put 20 in safe like bonds, 80 in stocks, which further would be 50 in index funds, 20 in sector funds, 10 maybe in individual stocks. Maybe. I would still keep it at 5 or so. And then break this 5 to 50 cents * 10 each and distribute across various sectors. Forget about the timing. There is no way to predict right now which company would perform good, would hold on to market, would buy or get bought, would compete or just be upstaged by a rival. And if they do hold ground, in wall street speak that is just losing ground. Market does not care for hold and stability and what not. That is what the Utilties are for or holding companies are for. Or big dividend paying stocks are for. They want growth like an Amazon.
Does it even make to have a strategy with so much change and volatility ? After all, I guess, one might be able to play this game for a 2-3 decades at max. As a fund manager ,same time frame or maybe more if you survive. As a common man, that is the time to invest and maybe preserve capital for a 5-6 decades long. Not to mention, the main focus on career and to buy home and maybe a rental property or bootstrap a startup or two. As rightly said by wise men a many, index funds is the way to go for most people, most institutional investors and most any other people. A fund manager with lot of clout and money can maybe play a bit. Just like a warren buffet. Maybe one works for a pre-ipo company or in a public company which gives these stocks and options for less. Say an amazon exec banking amazon stocks. But that is again part of earning and said exec might start a new company or work hard to get there at the top of amazon which merits such huge payout. All said and done, that is a function of your earning potential and not investing potential. As said earlier, diversify and also have realistic expectations. Some stock is doing well, own a piece of it, keep it for long, bank some profit and wait for long time if it is a good stock. And if you lose money on that, dont dwelve on it since you will have a fallback of index funds to cry yourself on!
https://personal.vanguard.com/pdf/ISGITO.pdf
It is interesting how the blogosphere gave further arguments on index funds vs focusing on timing vs looking at few stocks. Easily said than done. If we see in 2019 who is good and were we able to predict that say in 2009, even in hindsight it is a tough ask. There is index funds on one side and there is retail companies like Costco or Walmart, utilities sector, healthcare sector, pharma, finance ( which was coming off the recession ), tech sector and so on. Nothing shined particularly bright sector wise. Company wise there is an Apple which actually did well post 2009 when the talk of the town was it was past its prime. Which is also correct since Apple did not have any blockbuster product since then and it is just running off the iPhone launched in 2007! A google could be argued as having a sound strategy but then they did so-so overall. A facebook or twitter? New ones like Uber or airbnb which still have to go to IPO stage as of this writing? Even a fast paced tech sector has lots of delays.
Granted, there are others who went the whole nine yards and maybe performed well. But in the grand scheme of things that is just looking for performers or non performers in a stack of hay. Rather just purchase the whole hay ? One strategy that I found useful was to diversify to real estate as well as put the money in some sort of bonds or safe harbor. That atleast gave me lots of good sleep. Diversification is key and very important. Market timing in stages is also important. Getting some sectors and owning whole market is also key. Then focusing some money on few top performers is also not that bad strategy. That said, be ready to lose some money or focus on duo-polies and multi-polies. But that is again a tough ask in tech sector.
If I had 100 bucks to invest, I would still maybe put 20 in safe like bonds, 80 in stocks, which further would be 50 in index funds, 20 in sector funds, 10 maybe in individual stocks. Maybe. I would still keep it at 5 or so. And then break this 5 to 50 cents * 10 each and distribute across various sectors. Forget about the timing. There is no way to predict right now which company would perform good, would hold on to market, would buy or get bought, would compete or just be upstaged by a rival. And if they do hold ground, in wall street speak that is just losing ground. Market does not care for hold and stability and what not. That is what the Utilties are for or holding companies are for. Or big dividend paying stocks are for. They want growth like an Amazon.
Does it even make to have a strategy with so much change and volatility ? After all, I guess, one might be able to play this game for a 2-3 decades at max. As a fund manager ,same time frame or maybe more if you survive. As a common man, that is the time to invest and maybe preserve capital for a 5-6 decades long. Not to mention, the main focus on career and to buy home and maybe a rental property or bootstrap a startup or two. As rightly said by wise men a many, index funds is the way to go for most people, most institutional investors and most any other people. A fund manager with lot of clout and money can maybe play a bit. Just like a warren buffet. Maybe one works for a pre-ipo company or in a public company which gives these stocks and options for less. Say an amazon exec banking amazon stocks. But that is again part of earning and said exec might start a new company or work hard to get there at the top of amazon which merits such huge payout. All said and done, that is a function of your earning potential and not investing potential. As said earlier, diversify and also have realistic expectations. Some stock is doing well, own a piece of it, keep it for long, bank some profit and wait for long time if it is a good stock. And if you lose money on that, dont dwelve on it since you will have a fallback of index funds to cry yourself on!
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