Re: Why do people pick stocks?
Fred Foldvary wrote: Even indexes replace firms from time to time. The SP 500 has just been purged of foreign firms, which apparently means that scads of index funds will now follow suit - which strikes me as a bit silly. -- Anton Sherwood, http://www.ogre.nu/
Re: Why do people pick stocks?
The SP 500 has just been purged of foreign firms, which apparently means that scads of index funds will now follow suit - which strikes me as a bit silly. Anton Sherwood, http://www.ogre.nu/ Maybe not. Modern Portfolio Theory segregates a portfolio into various categories, and typically US stocks are a category distinct from international or foreign stocks. By purging foreign firms, the SP becomes a more suitable vehicle for a domestic US index fund. On the other hand, if companies are increasingly global, so that few large firms are significantly US, then it would be silly. I don't know if that's the case today. Fred Foldvary = [EMAIL PROTECTED] __ Do You Yahoo!? Yahoo! Autos - Get free new car price quotes http://autos.yahoo.com
Re: Why do people pick stocks?
William Dickens wrote: Discount brokers can really beat a .2% annual fee with no loads on either end? For sure. Most brokerage houses don't have any fees other than fees for trading. Even if you have a round-trip cost of $100 for $10,000 worth of stock (you can do much better than this - - $14 is not out of the question) if you hold it for 20 years you are way ahead of a .2% annual fee. For $10,000 worth of a single stock? Or $10,000 of any desired bundle of widely-held stocks? But again, according to my sources the actual difference in performance between holding yourself and holding in the lowest cost mutual fund is a lot more than .2% per year. - - Bill Dickens -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Why do people pick stocks?
There is another reason howevr. Even the lowest cost index mutual funds have more overhead then you are going to have if you use a discount broker and buy and hold (and they hide these costs Who is the they - mutual funds or discount brokers? And how are they being hidden? I've been told by a Law Professor who works on security regulation that the management fees reported by index funds do not fully reflect the costs they incur for reballencing their portfolio's to match market shares and that the actual costs are a multiple of the reported management fees. It was claimed that if one compared the return on the SP500 to the return on holding the mutual fund the difference in basis points would be larger than the reported management fees. I told this to a stock broker who insisted that that was wrong or that I had misunderstood and that perhaps what the law professor meant was that because the fund incurs capital gains in the process of dealing with fluctuations in invested funds and these have to be paid out and taxed that that would account for the difference between the afrter tax return from holding the market yourself and holding the mutual fund. Take your pick. I don't have first hand knowledge to judge. Discount brokers can really beat a .2% annual fee with no loads on either end? For sure. Most brokerage houses don't have any fees other than fees for trading. Even if you have a round-trip cost of $100 for $10,000 worth of stock (you can do much better than this - - $14 is not out of the question) if you hold it for 20 years you are way ahead of a .2% annual fee. But again, according to my sources the actual difference in performance between holding yourself and holding in the lowest cost mutual fund is a lot more than .2% per year. - - Bill Dickens
Re: Why do people pick stocks?
--- William Dickens [EMAIL PROTECTED] wrote: There is another reason howevr. Even the lowest cost index mutual funds have more overhead then you are going to have if you use a discount broker and buy and hold ... But it is not wise to just buy and hold. Firms can decline and collapse, as we have observed, and stocks need to be closely watched. In contrast, index funds can be held passively, and one only needs to rebalance occasionally. Individual stocks will need to be sold occasionally, and replaced, which costs fees, aside from the monitoring costs. Even indexes replace firms from time to time. Fred Foldvary = [EMAIL PROTECTED] __ Do You Yahoo!? Yahoo! Autos - Get free new car price quotes http://autos.yahoo.com
Re: Why do people pick stocks?
Hi All! Here are few more reasons why people pick their own stocks: 1. You can control you own taxes. There is nothing worse than buying a mutual fund right before a distribution! 2. You can easily monitor your portfolio of stocks and understand why each stock has gone up and down. To understand why SP500 went up 2% on a particular day is a bit more challenging. 3. You can sell your stocks while the market is open. If you purchase an index mutual fund you get the market close price. The exception is if you purchase an ETF (exchange traded fund) which tracks an index. In this case you can sell anytime market is open. 4. No management fees to maintain your portfolio. The average annual management feefor a mutual fund (non-index) is something like 1.35%. The annual management fee for an index mutual fund(like one based on SP500) can be as low as 0.17%. Note that commissions for buying and selling individual stocks can easily cost more than annual management fees for mutual funds. 5. And last but not least, you can talk to your friends about your winning stock picks during lunch. Vince.Do You Yahoo!? Yahoo! Autos - Get free new car price quotes
Re: Why do people pick stocks?
Ie, why do people accept lower returns just for the privilige of picking the stocks themselves? Mostly because they believe they are smarter or more knowledgable than average and will outperform the market. I know some very sophisticated people who believe this (and at least some of them have portfolios that do outperform the market on a regular basis (note that this could be endogenous)). There is another reason howevr. Even the lowest cost index mutual funds have more overhead then you are going to have if you use a discount broker and buy and hold (and they hide these costs - - I'm not talking about the loads or transactions costs you pay for some mutual funds, but the management and trading fees that get deducted form your investment each year). If your portfolio is large enough to allow sufficient diversification you can do somewhat better on your own - - particularly if you want to diversify beyond the SP500. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Why do people pick stocks?
Dr. Noel D. Campbell Asst. Prof. of Business Administration North Georgia College St. Univ. Dahlonega, GA 30597 (706)864-1621 [EMAIL PROTECTED] 07/13/02 09:52 AM Ie, why do people accept lower returns just for the privilige of picking the stocks themselves? Mostly because they believe they are smarter or more knowledgable than average and will outperform the market. Based on my anecdotal evidence from teaching money banking to adults, I agree with Dr. Dickens. People overestimate their own abilities and the abilities of people they know personally. We know this from other fields of study as well. The general efficiency (not to say perfect efficiency) of markets is a big component of my course. Nevertheless, every semester I have numerous students offering me hot tips, advice, etc. they created or got from a good friend. I respond with the litany of diversify, buy, hold. Students invariably reply, Yes, that's good for the market overall, but I or my friend) am really smart. While I may not outguess the market every time, I've certainly outguessed the market this time. Oddly enough, I've never had a student come see me in a later semester telling me about his portfolio's performance. Noel
Re: Why do people pick stocks?
William Dickens wrote: Ie, why do people accept lower returns just for the privilige of picking the stocks themselves? Mostly because they believe they are smarter or more knowledgable than average and will outperform the market. I know some very sophisticated people who believe this (and at least some of them have portfolios that do outperform the market on a regular basis (note that this could be endogenous)). There is another reason howevr. Even the lowest cost index mutual funds have more overhead then you are going to have if you use a discount broker and buy and hold (and they hide these costs Who is the they - mutual funds or discount brokers? And how are they being hidden? - - I'm not talking about the loads or transactions costs you pay for some mutual funds, but the management and trading fees that get deducted form your investment each year). If your portfolio is large enough to allow sufficient diversification you can do somewhat better on your own - - particularly if you want to diversify beyond the SP500. - - Bill Discount brokers can really beat a .2% annual fee with no loads on either end? -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He lives in deadly terror of agreeing; 'Twould make him seem an ordinary being. Indeed, he's so in love with contradiction, He'll turn against his most profound conviction And with a furious eloquence deplore it, If only someone else is speaking for it. Moliere, *The Misanthrope*
Why do people pick stocks?
If it is common knowledge that picking stocks is no better than using an index, then why is stock picking so popular? Ie, why do people accept lower returns just for the privilige of picking the stocks themselves? Fabio
Re: Why do people pick stocks?
What makes you think that picking stocks is no better? What is an Index, but a portfolio of stocks someone else has picked? Your entire base asssumptions are flawed. People may choose to pick stocks instead of pre-defined (indexes) or third-party defined (mutual funds) portfolios because: a) they trust their judgement better than others (don't you?) b) they can choose their risk level (and correlating return potential) c) they may be sophisticated investors (expert in certain industries) d) they may choose to invest in companies they trust, share vision with, or share moral values. e) they may wish to conduct their own due diligence on their investments (read the prospectus, SEC filings, etc). Adam - Original Message - From: fabio guillermo rojas [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Friday, July 12, 2002 6:56 PM Subject: Why do people pick stocks?[via LSMTP - see www.lsoft.com] If it is common knowledge that picking stocks is no better than using an index, then why is stock picking so popular? Ie, why do people accept lower returns just for the privilige of picking the stocks themselves? Fabio
Re: Why do people pick stocks?
If it is common knowledge that picking stocks is no better than using an index, then why is stock picking so popular? Fabio 1) It is not common knowledge to many investors. 2) Some stock pickers indeed do better than average. 3) Investors tend to be overconfident as to their abilities. This is generally found by behavioral economists. Ie, why do people accept lower returns just for the privilige of picking the stocks themselves? Besides being overconfident, they enjoy the picking and owning, and some like the thrill of risk. Fred Foldvary = [EMAIL PROTECTED] __ Do You Yahoo!? Yahoo! Autos - Get free new car price quotes http://autos.yahoo.com
