5 ms·

Yes and no. I read in Brealey-Myers [1] that you can get 80-90% of the way to pure beta (market risk) by picking 15-20 stocks. You just have to pick ones that

Yes and no. I read in Brealey-Myers [1] that you can get 80-90% of the way to pure beta (market risk) by picking 15-20 stocks. You just have to pick ones that aren't super correlated, e.g. 10 pharmaceutical companies. Whether it's worth your time messing about with this is a separate matter entirely. [1] https://www.amazon.com/Principles-Corporate-Finance-Richard-Brealey/dp/0073405108 https://www.amazon.com/Principles-Corporate-Finance-Richard-...

JamesBarney 8y ago
>Whether it's worth your time messing about with this is a separate matter entirely. Yeah, transaction fees can really eat into your gains unless you're a very good picked or are interesting millions.
- gibybo 8y ago
  >Yeah, transaction fees can really eat into your gains unless you're a very good picked or are interesting millions. Buying 20 stocks would only cost you ~$120 (at $6/trade). For a $100k portfolio, that's an expense ratio of only 0.12% if you did it once per year.
  - justin66 8y ago
    Buying some amount of each stock once a year is probably not how you're going to be doing things if, for example, you want to keep your portfolio balanced to match your desired asset allocation. You'll probably need to make more trades than this. You're also more vulnerable to losing a bit of money to the bid-ask spread than Vanguard or Fidelity are.
- ericd 8y ago
  Eh these are trending to zero pretty quickly, and with buy and hold plus yearly rebalancing, you're not really doing that many transactions anyway.
  - zone411 8y ago
    I wouldn't use brokers that have zero fees but yes, the transaction fees are not that high.
mathattack 8y ago
Much easier to just buy an index.
- tryptophan 8y ago
  Especially if you are trying to capture market beta. It's literally what index funds were designed to do.
- beambot 8y ago
  Yes & no. Buying individual stocks lets you exercise some level of moral control over which companies you tacitly back. Don't want to support diabetes-inducing sugar water? Then avoid soda companies. Don't want to support environmentally-unsound logging, mining, or petro companies that exploit unregulated externalities? Great, you can select the ones that don't. Don't want to back companies that exploit 3rd-world sweathshops -- there again, you can. Investment dollars are like voting... and generally speaking, picking individual stocks is akin to evaluating a politician based on their policies rather than voting strictly along party lines. (Edit: as an aside, you can find "Socially Conscious" ETFs to help offset this concern.)
  - brianwawok 8y ago
    > Don't want to support diabetes-inducing sugar water? Then avoid soda companies. So thought experiment on this. Say 49.5% of the world buys pure index fund. 49.5% of the world what you said... and say, all avoided Pepsi stock. Wouldn't that mean that Pepsi stock is undervalued from a PE standpoint, and the 1% of investors left would go 100% in Pepsi, and make a crapload of money? I totally get voting with your money. If you think some company is absurd for some reason, avoid buying their product. But to avoid buying stock? I think all you do is create an investment opportunity for someone savvy with numbers to make big money, and the company feels no different. Please correct me if I am wrong though, I might be missing something in this argument.
    - mywittyname 8y ago
      I feel like this is a perfect example of "put your money where you mouth is." If you are outraged over soft drinks, then you should own soft drink stock so that, A) you have some influence over their operations, B) you're shouldering some of the risks associated with moving to a safer product. If you avoid a company completely (purchasing neither their stock nor poduct), then they have absolutely no reason to listen to you, so you're only remaining option is regulation.

JamesBarney 8y ago

>Whether it's worth your time messing about with this is a separate matter entirely. Yeah, transaction fees can really eat into your gains unless you're a very good picked or are interesting millions.

gibybo 8y ago
>Yeah, transaction fees can really eat into your gains unless you're a very good picked or are interesting millions. Buying 20 stocks would only cost you ~$120 (at $6/trade). For a $100k portfolio, that's an expense ratio of only 0.12% if you did it once per year.
- justin66 8y ago
  Buying some amount of each stock once a year is probably not how you're going to be doing things if, for example, you want to keep your portfolio balanced to match your desired asset allocation. You'll probably need to make more trades than this. You're also more vulnerable to losing a bit of money to the bid-ask spread than Vanguard or Fidelity are.
ericd 8y ago
Eh these are trending to zero pretty quickly, and with buy and hold plus yearly rebalancing, you're not really doing that many transactions anyway.
- zone411 8y ago
  I wouldn't use brokers that have zero fees but yes, the transaction fees are not that high.

mathattack 8y ago

Much easier to just buy an index.

tryptophan 8y ago
Especially if you are trying to capture market beta. It's literally what index funds were designed to do.
beambot 8y ago
Yes & no. Buying individual stocks lets you exercise some level of moral control over which companies you tacitly back. Don't want to support diabetes-inducing sugar water? Then avoid soda companies. Don't want to support environmentally-unsound logging, mining, or petro companies that exploit unregulated externalities? Great, you can select the ones that don't. Don't want to back companies that exploit 3rd-world sweathshops -- there again, you can. Investment dollars are like voting... and generally speaking, picking individual stocks is akin to evaluating a politician based on their policies rather than voting strictly along party lines. (Edit: as an aside, you can find "Socially Conscious" ETFs to help offset this concern.)
- brianwawok 8y ago
  > Don't want to support diabetes-inducing sugar water? Then avoid soda companies. So thought experiment on this. Say 49.5% of the world buys pure index fund. 49.5% of the world what you said... and say, all avoided Pepsi stock. Wouldn't that mean that Pepsi stock is undervalued from a PE standpoint, and the 1% of investors left would go 100% in Pepsi, and make a crapload of money? I totally get voting with your money. If you think some company is absurd for some reason, avoid buying their product. But to avoid buying stock? I think all you do is create an investment opportunity for someone savvy with numbers to make big money, and the company feels no different. Please correct me if I am wrong though, I might be missing something in this argument.
  - mywittyname 8y ago
    I feel like this is a perfect example of "put your money where you mouth is." If you are outraged over soft drinks, then you should own soft drink stock so that, A) you have some influence over their operations, B) you're shouldering some of the risks associated with moving to a safer product. If you avoid a company completely (purchasing neither their stock nor poduct), then they have absolutely no reason to listen to you, so you're only remaining option is regulation.