I am only interested in CEF's, ETF's, or mutual funds. I am a fairly avid investor that has lost the taste for individual stocks.I want to address this sentiment that I am sure is not unique to this reader. First off I am not critical of this type of sentiment but it is worth exploring. I assume there is a lot of emotion behind the comment, I could be wrong though. In all likelihood an investor can get to where they need to get be without any individual stocks.
I am not an all or nothing type of investor though and I don't think that someone with a clearly visible risk aversion like the above reader should be all or nothing either. The fact is there are plenty of somewhat mature companies that have long long track records of low beta growth. One example would be a company like Johnson Controls (JCI). In addition to vast outperformance of the SPX, JCI has increased its dividend for about 40 years in a row. I don't own this now but I have owned it in the past and may own it again. There really are dozens of stocks like this. Owning a few names in like this in a portfolio of CEFs and ETFs is not taking undue risk. To be clear I am not talking about Infospace or OSI Pharma.
The point is, and I have made it here before, is that dividends have historically accounted for 40% of historical returns and most CEFs and ETFs don't have very high yields. Even the DVY ETF, which I own and think is a great ETF, only yields in 3's. There are many stocks that yield more than 4% in sectors like utilities, telecom and foreign financials that a portfolio of just ETFs and CEFs doesn't capture.
To this reader I would say to explore why you feel the way that you do and study a few stocks that fit the general description of JCI, that is long, successful track record of growth and dividend increases. The fact is very few stocks go out of business. If you revisit the notion of owning stocks and still decide not for me, fine but revisit the idea again in another two years or so.
4 comments:
Roger:
One concept I haven't heard mentioned is that with low trading rates one can create one's own "mutual fund." For a purchase of a thousand dollars one pays less than one percent, if one is planning to hold for the medium term (2 to 5 years)then this becomes nearly as cheap as an index fund. If one has 20 or 30 thousand to invest this can be a relatively diversified set and one does get the full dividends.
One can even somewhat imitate the structure of existing funds and by using the built in mechanisms (or simply watching the market) for a few extra dollars one can frequently buy a few percent lower and sell a few percent higher thus reducing or eliminating the cost of purchase and sale.
David makes a good, true point about creating your own mututal fund. There are sveral outlets for this. The do-it-yourselfers that I talk to however are interested in simple solutions. Just because buying 50 stocks may now be cheaper it is not simple. You would still need to keep tabs on all those names and makes changes as circumstances dictate. To be clear I think people can learn to do this but simple its not.
Roger: I made the comment that you referenced. However, I am not risk averse. I simply don't believe that I have the time to keep up with a stock portfolio that is adequately diversified. Thus, my aversion. With a very busy professional life, I find that I can evaluate fund performance and make sector judgements with a reasonable time commitment. Stocks seem to take too much time----evaluating financial statement, etc on a continuous basis. I have a MBA so I am familiar with equity analysis but feel that funds are a better tool for me to accomplish my investing goals. Of course, a few stocks (esp. dividend paying) have some appeal. My approach to investing is fairly boring and it can be fun to have an occasional stock to track. Hope that explains my earlier comment.
Roger:
Your point is valid, but a lot of it is philosophy of investment. Most people tend towards buy and hold, they feel it's not wise to respond to fluctuations. At least in certain markets this has proven to be a reasonably good philosophy.
To the extent that re-examination is suggested most advisors suggest yearly or sometimes twice a year. The degree of examination necessary is a relative matter. We know that often too much information is of little positive value with potentially negative consequences.
http://slate.msn.com/id/2111894/entry/0/
I have seen at least one study that suggests groups of stocks bought for a few simple value variables (eg. p/e, price/book) perform as a group better than average over time. So going to Forbes looking at this numbers, printing them, comparing with your last printing, only responding if information is unexpected (stock up more than you think it should be, basic figures significantly shifted etc.) does take an evening, but is manageable.
For medium term investing a lot of times the numbers don't matter. For example I might think energy is a good bet in the next 5 years whether or not oil drops to 20 dollars next year. I might also choce to avoid companies with mideast exposure going Norwegian, Brazilian, Canadian, Chinese, coal, driling, shipping, alternative...
With a lot of such companies it's simply impossible for most of us to gauge things before the profesional market. For example you mentioned PKZ, this is a somewhat risky stock with a high chance of gain, anyone buying it knows it could fall in half, then triple, it could fall to nothing on political threats then be resurrected or not. It is a gamble, NHY or STO are much less so and should do well if oil does,
I think for many of us just deciding that a stock has long term value and paying a medium amount or even no attention is a potentially useful strategy. Based on historical factors this is especially true of the high dividend stocks you recommended. Though I will admit that at this time I'm scared of the financial sector.
Philosophically a lot of people are devoted to buying some stock, putting it in the equivalent of a dresser drawer and looking at in 10 or 20 years. With 6 and 10 dollar fees it's possible to buy enough variety to be somewhat protected.
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