As I go about my life as a finance nerd, I often take the opportunity to mention investing in casual conversation. Most people I talk to often mention one stock in particular, like Tesla, Microsoft or Apple.
I often try to bring the conversation to broad passive index funds which appears to go over many’s head. Picking individual stocks has cost me a lot of money in the past.
And if you missed part 1, check it out here.
Background
I got started investing somewhere around 2008-2009, and put some of my savings into a Roth IRA with Scottrade. I tried to see what I had bought and when, but the history is not available since TDAmeritrade acquired Scottrade in 2017. Most of my buys were in 2009/2010 or in 2012/13 when I started making serious money in college doing door to door sales.
My Dad encouraged me to put much of my money into an ETF (Exchange Traded Fund) called SPY, which simply tracks the S&P500. It’s a smart move recommended by Warren Buffett, the greatest investor of all time.
Being new to investing, my Dad also encouraged me to choose some individual companies to make it more interesting to me.
It’s “cool” to own Amazon, Tesla, Netflix, or whatever other company is currently in style. It’s a little less exciting to say that I own a sliver of the 500 largest companies in America across each sector weighted by capitalization.
Stock Picking Teen
I started a habit of checking Yahoo Finance often and reading up on companies. 3D printing was a relatively new thing, and I bought most of the larger public companies including Stratasys (SSYS), 3D Systems (DDD), Voxeljet (VJET) and ExOne (XONE).
They were starting to print in different metals, at larger scale and even printing tissue. This seemed like a huge disrupter potentially, that could revolutionize some industries.
For a while I looked like a genius. SSYS and DDD took turns soaring, along with the others. If I bought in Jan 2009, SSYS was somewhere around $35 a share. My money quadrupled quickly, but it slowly came back down to today where it is $15 a share.
I sold most of these off in 2015-2016 to move money into nice broad passive index funds. The S&P 500 would have been better from the beginning, as indicated in the chart.
I also tried some solar stocks including SolarCity which is now owned by Tesla and no longer on Yahoo Finance. Others I held included Jinko Solar, SunPower and SunEdison. Once again, the chart is favorable to the index over time.
Reminder: I can’t tell you when I bought or sold exactly but overall I would have been better off with S&P500 index.
Toyota Stock
I love Toyota. They’re a great company, a very profitable and reliable automaker. I’ve owned 5 of their vehicles and many in my family also owned Toyota’s with virtually no serious issues.
I bought $4,000 in Toyota stock near $80 a share. Now I might be mistaking the year, but the government was threatening to shut down at the beginning of 2012 if congress didn’t pass a bill for spending. I didn’t think they would figure it out, but they did late at night.
I had sold all my stock the day before and in a short while the stock shot up to $120 a share, and it has hung around there for several years now.
This is when I learned about “Trailing stop on quotes”. I missed out on a 50% gain and worse yet, sat on the money for a while. That’s a $2,000 mistake at least. Again, the S&P 500 would have been a much better bet.
Individual Stocks Vs Index Funds
Buying individual stocks is fun, but it carries more risk. It’s hard to know more than the next investor. Yahoo Finance articles aren’t going to give you the deep insight into a company you should have to make a good decision.
When you buy an individual stock, that company can go down to 0 in a worst case scenario.
With broad index funds, like SPY or VTSAX, you are buying a piece of 500 or 3,743 companies. If one of those companies goes bankrupt, or is no longer one of the largest 500, it simply drops out of the fund and is replaced by another. Passive index funds self purge with no tax liability to you.
I do own a little Tesla still, some Apple and Google too. I’ve decided there is no sense in selling them now as they have done extremely well compared to most. I also made the mistake of jumping in and out of Amazon while it was still under $1000 a share ($1800 ish now). They are fun and exciting companies.
Most of my new money just goes into boring old index funds, with the exception of my Employee Stock Purchase Plan. I get to buy stock in the company I work for at a 15% discount and can sell after one year. That’s the plan, and use the money for other purposes while locking in an automatic 15% gain plus dividends.
Conclusion
Picking individual stocks is tough to do, and the average Joe simply doesn’t have as many resources as institutional investors. I will say I have been intrigued by the Motley Fool and have considered subscribing to their picks. An old manager of mine said that’s all he does and he has seen great returns.
If you want to see what I invest in now, I detail my holdings in this post, but they have changed somewhat since changing jobs, rolling over a 401k, and moving my HSA to Fidelity.
Counting The Cost
It’s tough to put a total number on what these mistakes cost, due to all my transaction history destroyed by Scottrade’s acquisition.
With my Toyota mistake being $2,000 or so, I figure my stock picking history has cost me somewhere between $5,000 and $10,000 in capital gains, dividends and taxes.
I like to look at this loss as an investment in my education, and I truly have learned from my past mistakes.
Let me know if you have any experience with stock picking in the comments.
