Question for stock pickers

[zetta]

This question is for those who like to maintain a portfolio of individual stocks.

If you have done some analysis and feel that a particular stock is a good buy and a good fit for your portfolio, how much will you put into it? $1k? $2k?, $10k? , $50k? Do you base it on the overall size and allocation of your portfolio? Do you have a general timeframe in mind for how long you plan to keep a stock?

I'm a mutual fund gal, buy and hold (to a fault), very long-term (>10 years) focused. My DH feels I've been holding him back from investing in individual stocks. At times he has mentioned he wants to put $10k or $50k into a single stock, and by the time I've gotten over the shock of the dollar amount he says the buying opportunity has passed. The argument we have is entirely predictable -- he says $10k, I ask how about $2k, I ask if he's timing the market, he tells me how he lost money by holding a certain stock too long because I kept talking about buy and hold. He doesn't end up buying the stock (even though I would've been ok with investing a smaller amount) and we're both frustrated.

The answer, I think, is to have an account that is dedicated to stock trading, and to agree that he can invest it any way he wants. Would $20k be a reasonable starting amount for such an account? Our overall picture is $345k in retirement accounts, $375 in taxable mutual funds, $9k in ESPP stock, $17k in money market, and $20k in checking/savings. We're 37 years old. I estimate the emergency fund needs to be in the range of $13k to $26k, and we contribute 12% to 401k. We've agreed in principal to each manage our own retirement funds, although we're trying to consult each other before making any major moves.

Given this, what amount is reasonable to move into the stock account, and what is a reasonable size for an individual purchase?

[meaghanchan]

Some reccommend a 5% allocation to "fun money" in your portfolio. If you have about $700K total, that would be about $35k.

I too would feel nervous putting that much money in a single stock, but maybe you both can agree to set aside that amount, with the stipulation that your husband can do whatever he wants with the 'fun money', but when it's gone, it's gone- no more single stock investing.

I question why you say you 'buy and hold' to a fault. I'm a buy-and-holder myself, and if you buy funds based on sound reasoning, unless those reasons change, that should be no reason to sell them.

[Broken Arrow]

Er, this sounds a bit more like a relationship issue than a stock picking one.

To me, stock picking a high risk venture... but it doesn't have to be out of line with your overall risk tolerance. Simply give him an agreed upon percentage, and dial down the rest of your portfolio accordingly.

For example, if you have 15% international and 15% small cap right now, you can change that to 10% international, 10% small cap, and 10% hubby's picks. That's what I did to mine. I simply reallocated my portfolio without changing the level of risk.

This is just me, but I don't like the idea of "fun" or "play" money. To me, every dollar is important. Every one of them! Perhaps some people just tell themselves that so they can somehow handle the high risk involved, but I don't agree with it as a policy. Even if I do end up losing money, I want to make the smartest plays possible and fight for each and every dollar I have....

But I didn't say that to specifically pick on anyone in particular on this. It just happen to have come up at this time and place. I like you very much, Meaghanchan!

[aida2003]

It's just my personal opinion, but I think that Zetta's hubby really wants to 'play' market and I would let the guy do it or otherwise the guy will feel some form of suffocation in the marriage. Divorces are much more expensive than losing $15-$30k in the stock picking.
I'd be also wary to put the whole amount in one stock though unless he's got some good insider info that a new 'Google' co. is about to take off.
Anyway, if he loses more of the 'fun' money, maybe he'll lose the interest in stocks and if he's successful let him build it.
I think $15k-$30k is very reasonable considering your overall financial picture.

[meaghanchan]

But I didn't say that to specifically pick on anyone in particular on this. It just happen to have come up at this time and place. I like you very much, Meaghanchan!

Thanks Broken Arrow- no offense taken. I personally don't have any allotment in my allocation for 'fun money', nor do I own any individual stocks. I just wanted to point out that some people (Bogle, for example) don't have a problem with a small allocation of money for individual stock picking, as long as the other 95% is wisely invested.

[Scanner]

I read an article, that beleive it or not, 1-3 stocks is optimum for speculating for the average investor.

So, if your husband wants to sink $35,000 into Apple or Scanner Silver Mining Inc., have him have at it. . .chances are, unless it's penny stock, he won't lose the whole kit n' kaboodle. . .well, it's possible (ENRON, bond rating co.s', etc.)

I think speculation is an important part of investing as much as an occasional ice cream or gyro sandwich on the boardwalk is important to your diet.

[Taribor]

I have around 24k in a few individual stocks right now within my self-directed Roth. The ONLY reason I do it is because my 401k is conservatively managed and I have a good pension plan, so I made personal decision to be super aggressive with my Roth.

There are a lot of individual companies selling at very nice discounts right now and by jumping in and out a few times with the same stock, I am up around 7% this year while the mutual funds in my 401k is down about the same.

I don't consider this speculating but to each his own. I thoroughly research my companies and will not buy until they hit the price I want. I personally hate the idea of being held down by an index fund when some of the best companies in America are selling at 10-20% discounts this year, but that is just my opinion.

[zetta]

I question why you say you 'buy and hold' to a fault. I'm a buy-and-holder myself, and if you buy funds based on sound reasoning, unless those reasons change, that should be no reason to sell them.

When I first started working, I bought about $6k of AT&T stock through an ESPP, and held on to it while it divested into Lucent, Comcast, and a few other stocks. At one time my Lucent stock was worth over $40k, and I held it all the way up and all the way down and finally sold at a loss a few years later. If that's not buy and hold to a fault, I don't know what is! I concluded that until I'm willing to pay more attention, I should not own individual stocks!

Er, this sounds a bit more like a relationship issue than a stock picking one.

Yes, it certainly is. Aida2003 is right that my husband feels a bit suffocated financially. I think creating the stock account will go a long way to fixing it.

It's helpful to hear from some stock investors that a $10k play isn't unreasonable, and what size of an account is good to start with.

[lucasrd]

Let's not confuse speculating with investing in blue-chip stocks or small-caps with good balance sheets. You guys make it sound like investing in individual stocks is the riskiest thing in the world!

Doing your research and buying some solid companies is not really that risky. Just make sure to have a plan when you want to buy and when to sell...buy in increments on the way down and sell into strength.

If you plan on day-trading, however,...you could stand to lose a bundle...even with good compaines.

As far as considering buying individual stocks as speculating i'd have to disagree. I see speculating as trying to invest in the NEXT Google...or Microsoft...not investing in Google or Microsoft now.

[Broken Arrow]

Let's not confuse speculating with investing in blue-chip stocks or small-caps with good balance sheets. You guys make it sound like investing in individual stocks is the riskiest thing in the world!

Doing your research and buying some solid companies is not really that risky. Just make sure to have a plan when you want to buy and when to sell...buy in increments on the way down and sell into strength.

If you plan on day-trading, however,...you could stand to lose a bundle...even with good compaines.

As far as considering buying individual stocks as speculating i'd have to disagree. I see speculating as trying to invest in the NEXT Google...or Microsoft...not investing in Google or Microsoft now.

Hehe, well said. I whole-heartedly agree with all this.... although I've mentioned it before, and kind of feel like I'd be more like Broken Record if I keep repeating it....

EDIT: Sorry to have to come back and edit like, but I may have slightly misunderstood that statement. Again, I completely agree that stock picking does not have to be terribly risky, but in this case, the OP (original poster) is handing the money over to someone whom I do not know the skill level. Said husband complains about timing and potentially trading actively, which automatically puts one in the risky category. That and, with stock picking, you're foregoing the inherent diversification that built into mutual funds.

[JBinKC]

For most people I would recommend a mutual fund. However, I have always done a portfolio of individual stocks ever since I got my mutual fund in an IRA up to 20K back in the late 80s but that was me. One bad thing about owning individual stocks is the time it takes to research them and be on top of them. It is extremely time consuming. I spend about 60 hours a week on them.

[lucasrd]

For most people I would recommend a mutual fund. However, I have always done a portfolio of individual stocks ever since I got my mutual fund in an IRA up to 20K back in the late 80s but that was me. One bad thing about owning individual stocks is the time it takes to research them and be on top of them. It is extremely time consuming. I spend about 60 hours a week on them.

how can you spend 60 hours a week researching your stocks? How many are in your portfolio??

[JBinKC]

About 80 now with many more than that tracked.

[Taribor]

About 80 now with many more than that tracked.

Impressive.


I spend about 10 hours/week on the few stocks I own......but I enjoy learning/research and it has become a hobby.

[Broken Arrow]

About 80 now with many more than that tracked.

Um, that's impressive....

Although, and this is just my personal opinion, but it's also overkill. In this field, quality research is vital... nearly above all else. So, if I had to research and track that many, my level of quality would suffer....

For what it's worth, Warren Buffet once publicly stated that you only need about half a dozen good positions at any one time. The lack of quantity is also why he is able to get his impressive gains, because his positions aren't watered down by lesser securities that would normally be there for diversification purposes.

If I want quantity, it'd be a lot simpler with just mutual funds....