When did you break your indexing rule and how did it turn out?

[jcc]

We all know that indexing is the way forward for long term gains. I've always believed in it and the logical side of my brain has kept me mostly in line.

But I think most of us also have that bit in their head that's wanting to give a go to single stocks, and I know a few people have mentioned a small "play money" allocation for that.

I'd be curious how that went for others as well as how they've coped with their successes or losses.

Personally, close to when I started investing, I put a small allocation(~200k yen each) into AMD and MSFT, buying at $19.5 and $109.5 respectively. Both have done extremely well with small bumps along the way, but are up 416% and 188% respectively in 3 1/2 years.

It kind of makes me wish I'd put more in, but then they would start becoming a significant part of my portfolio.

I was satisfied with this and never again touched single stocks until the meta crash following investor complaints about the spend on metaverse. People that have been following that probably saw META fall from a high of ~375 about 1 1/2 years ago to a low of $90 3 months ago. I was convinced that this was a massive overreaction approaching hysteria. Facebook may not be cool at the moment(nor do I particularly like it), but it still has huge numbers of users, and the whole metaverse dev costs still represent a small chunk of their costs, and if it does turn out well it could be massive, nevermind the applications that the hysteria folks completely ignored while focusing on the lackluster vr chat game(such as those for teleconferencing).

So I bought in 500k yen of meta at $94.7. It has since doubled, but because of the change in the exchange rate, my return in 3 months has been "only" 78.7%.

So I've had a pretty good run with single stocks, eclipsing the returns of my indexes(especially the bonds which I faithfully maintain my rather cautious 20% allocation in, having returned only 5% in ~4 years).

I'd like to claim it's all skill, but I think I'd be deceiving myself if I did. Sure I'm very familiar with all 3 companies, and bought into AMD and MSFT because I was confident in their leadership and vision. But this does put me in the awkward place of believing indexing to be the sure way forward, but at the same time being tempted to put more into single stocks. What will I do from here? If I see another opportunity like with META will I jump in more aggressively with more money, the kinds that could significantly accelerate(or slow) my plans? I'm currently undecided. The temptation is there but I worry that gradually I would lose inhibition to buying single stocks and start taking more and more speculative trades chasing the fortunate returns I've gotten until so far.

So... thoughts? Personal experiences? Has anyone gotten exuberant after success and then overdone it?

[RetireJapan]

I had the opposite experience: read about indexing, then decided I was clever enough to find shortcuts. Tried all sorts of things (hedge funds, gold miners, Chinese internet stocks, dividend growth stocks, value stocks, etc.).

Last year I realized that I would have made more money by indexing, so sold everything and now just have two mutuals funds: the all-country and a small allocation of developed country bonds.

Much less work keeping track of it too.

But I am a fan of having a play portfolio on the side if it keeps people interested. After all, we're not trying to beat anyone here, just reach our investment goals -as long as you do that, it doesn't matter how you got there

[adamu]

I bought some Bitcoin in 2011 that if I had held onto all of it, would still be worth more than all the stocks I've ever bought.

[sutebayashi]

My dad was from a poor family and mother from an agricultural business family, but after paying off the mortgage, they dabbled in rental properties as landlords. Too much work and effort.

My dad was a computer guy and developed some kind of shares trading program back in the 80’s. I remember as a kid my parents would sit together with the newspapers and the computer for a hour or two on weekends and enter (I assume) the stock market price data for the past week, to feed in this program my Dad had made.

This was also too much work and effort.

I remember my Dad also being excited about futures trading, but they found trying to time the market to be… unprofitable

There was a stock market crash that wiped out 75% of the market value, I gather.

But they did stick with building up a stock portfolio in individual shares, and in their later working years, devoted their earnings to investing in the share market.

Some of the individual names they picked bombed - I recall them swearing off touching names that were tightly linked to fickle government policies, or potential military uses.
But other names they picked did amazingly well (a jewelry firm, a shipping firm), and they gained more wealth than they had plans to use, and surprised me because I grew up mostly as kid without expensive stuff like some of the other “richer” seeming kids had.

My Dad was a reader and no doubt knew about having a diversified portfolio. Maybe something like 30 names. They didn’t invest in indexes, but they did have diversification (at least in the local stock market). They also kept investing over time.

As for myself, I started out work in a field where individual stock trading / investing was a hassle for compliance reasons, so I constrained myself to flipping foreign currency and commodity futures, before getting into index investing. My speculative activities have only ever got as far as “bonus” income (and were also too much work and effort at times), and it sucks when you lose money (I can notice how a nasty loss makes me irritable), but fortunately my lifetime scorecard is comfortably in the positive. I was a loser in the early days, and in some years though.

But my index investments now are a magnitude bigger than my speculative dealings, and can’t remember ever feeling similar stress. This is the easiest way to go about things, but yes it is boring!

I will probably stick with my speculative stuff so long as it interest me as a hobby mostly. It forces me to keep up with happenings, and it’s nice to cash out the income to reset to a nice round number.

Excuse my meandering thoughts, but a tale of a Japanese classic I read once started out with a line like “there are as many ways to make a fortune as there are … grains of sand at so-and-so” or something like that, and I think this is indeed true.

The diversified, broad index based approach is a pretty good way to go, but it’s not the only way. If you feel you know what you are doing, then go for it I say. (Some people prefer to stick with their knitting and that’s fine too.)
Just be sure to control your risk, no?

[jcc]

I bought some Bitcoin in 2011 that if I had held onto all of it, would still be worth more than all the stocks I've ever bought.

Hah, I order some tesla stock some time in 2019 and then later in the day cancelled the order because it was way too speculative. I still think that was the right decision, but it'd be up 10x now!

But my index investments now are a magnitude bigger than my speculative dealings, and can’t remember ever feeling similar stress. This is the easiest way to go about things, but yes it is boring!

True this. I guess this is the main reason I'll stick to an index approach, and have some side money in singles just to entertain that part of my brain. The ability to not stress over the vast majority of your savings being tied down to a handful of stocks(especially if they're all in more or less the same sector like mine are) is really important to your general health. I'll probably pull the trigger again if I see an absolute steal like what I believe I saw with meta, but I think I'll still keep the amount invested at a level that wouldn't make me lose sleep.

[captainspoke]

While most(?) might think of an indexing rule as cap-weighted and tied to something like VT/VTI, there are all kinds of other approaches to indexing.

Would you consider buying an index that is somehow not total market nor cap-weighted to be breaking the "indexing rule"? (i.e., not single stocks, but other indexes)

[jcc]

Would you consider buying an index that is somehow not total market nor cap-weighted to be breaking the "indexing rule"? (i.e., not single stocks, but other indexes)

I suppose I could have been clearer. Anything can be indexed, and what I'm referring to is just broad indexes covering entire markets and I could have been clearer