Why Am I Selling $700,000 Worth of Individual Stocks?





For more than a decade, I’ve been a lucky stock picker. 

For the most part, I’ve avoided mistakes and I’ve operated like a dumpster diver, looking for the fresh loaves of bread that the bakery boy accidentally threw out.  I have bought—what I deemed to be—great businesses at fair, or cheap prices.

I’ve crushed the market indexes…crushed them.   And in case you’re thinking me boastful and find me thoroughly unlikable, let me tell you what I think:  I’ve been lucky…for a long time.

Even in March of 2009, when I decided to throw a tiny amount of money at AIG, it panned out and I gained 350%.  In dollar terms, I’ve profited more than $130,000 in Berkshire Hathaway stock alone. 

It’s a profit that I’ll realize when the markets open tomorrow morning.

In 2010, I made 23%, beating the U.S. and world indexes thoroughly, despite having a healthy bond component.

But I haven’t been lucky for a long time, in stock market terms.  A decade is a blip.  It means nothing.  So I’m selling all of my individual stocks, amounting to more than $700,000 worth. It’s a non taxable account.

Below, you can see my pending sell orders. 

  Symbol




Security Name

Qty

     

RY

ROYAL BANK OF CANADA

 1,12o

WMT

WAL MART STORES INC

 20 

TJX

TJX COMPANIES INC

 200 

SSD

SIMPSON MANF INC

 331 

PFE

PFIZER INC

 2,355 

KO

COCA COLA CO

 1,615 

JNJ

JOHNSON & JOHNSON

 900 

AIG

AMERICAN INTL GROUP-

 70 

MSFT

MICROSOFT CORP

 600 

FAST

FASTENAL CO

 300 

BRK.B

BERKSHIRE HATHAWAY-B

 4,500 

Only two of these stocks will be sold at levels close to my purchase prices:  Microsoft, which has gained roughly 8% since my purchase, and The Royal Bank of Canada, which currently sells at a price similar to what I paid. 

The rest of them are up….a lot.  Even my Pfizer shares are up roughly 35%, including dividends.

But why am I selling?  I’ll give you a hint:

I also placed $700,000 worth of purchase orders today.

 What do you think I did, and why did I do it? 





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  1. The Passive Income E

    says on January 21, 2011

    I'll take a guess … You bought index shares. Why? Harry is buying these companies so you are running … :)

  2. BadCaleb

    says on January 21, 2011

    I thought you just recently decided to swap your XDV money with stocks in that ETF starting with RY to avoid the fees. Of course, your reasons are your own but I'd be curious why the change from a little over a month ago?

  3. Financial Uproar

    says on January 21, 2011

    Oooh! Guessing contests are fun. If I win, can I have a copy of your new book? :)

    My gut is to guess what passive income earner did- index funds. But that's no fun, so I'm going to say bonds. Lots and lots of fixed income. After all, you are getting old…

  4. Marco

    says on January 21, 2011

    Hi Andrew,

    I'm thinking a reallocation to ETFs… If so, why not keep some of the individual stocks for the dividend growth? You will receive a steady income from the portfolio without incurring any ETF fees and in the long run (I'm talking years, you know, perpetuity-like) you may be better off. Of course, I fully understand if the move is towards an ETF allocation, it's much easier managing an ETF portfolio versus a single-stock portfolio especially when some of the large index ETF's have cheap fees.

    Perhaps you're not even buying equities, perhaps a villa or two in Thailand and/or Laos instead??? ;)

    Marco

  5. The Biz of Life

    says on January 21, 2011

    To buy $700K worth of lottery tickets?

  6. Andrew Hallam

    says on January 21, 2011

    @The Passive Income Earner

    Hey Passive,

    I am using the money to add to my low cost indexes. As for Harry, he's an indexing brother. You might have been thinking of the cowboy investor I once alluded to in a post. He's a fad follower. What he buys, we'd all better sell! What Harry has the right idea.

  7. Andrew Hallam

    says on January 21, 2011

    @BadCaleb

    Hey BadCaleb,

    That was just one very expensive index (XDV on the Toronto Stock Exchange) It charged 0.55% annually so owning it didn't make any sense. Getting charged 0.07% (as with my U.S. total stock market index) is more like it.

  8. Andrew Hallam

    says on January 21, 2011

    @Financial Uproar

    Hey Uproar,

    You guess it too! As for age, don't let the bald head fool you. I'm only 40 years young. My bond allocation is 40%. I've always ensured that it has more or less equalled my age.

  9. Andrew Hallam

    says on January 21, 2011

    @Marco

    Hey Marco,

    No villa in Thailand. I could always wake up one day and find out that I don't really own it. Wouldn't that be a drag? It happens!

  10. Andrew Hallam

    says on January 21, 2011

    @The Biz of Life

    Hey Biz,

    Lottery tickets? That's the foolish man's tax! But I'd imagine someone, somewhere, somehow has done that very thing.

  11. The Passive Income E

    says on January 21, 2011

    @Andrew Hallam

    You are right. I was alluding to one of your old post … Sorry Harry!

  12. youngandthrifty

    says on January 21, 2011

    Hmmm… let me guess. Because the world is ending in 2012? :) Because the market is due for a correction? That's excellent that this is in a non-taxable account! I could just wince at the possible capital gains on that.

    I thought you were of the Buy and Hold mentality, no? :)

  13. larry macdonald

    says on January 21, 2011

    Andrew

    I could see you doing it because you don't want to spend the time and energy selecting stocks anymore. Maybe you are looking forward to doing other things with your time.

  14. Money Smarts Blog

    says on January 21, 2011

    Now this is fun!

    Mmm…I was thinking of indexing. Can't guess the same as everyone else though.

    How about – you are crystalizing the capital gains, since it's probably not taxable in Singapore. You are doing this now, before you move back to North America.

  15. TS

    says on January 21, 2011

    To clarify, you are making this change because you don't think you can beat the index over the long haul?

  16. Andrew Hallam

    says on January 21, 2011

    @TS

    Hey TS,

    That's absolutely correct. I've always had indexes as well as individual stocks, but statistically speaking, the odds of anyone beating a diversified basket of indexes over an investment lifetime are very low. People will do it, of course, but the odds are long–especially when weighing in "investor's behavior" which (studies show) ensures that most people underperform the products they own by dancing around: buying more when they rise in value, less when they fall in value etc. This was a tough decision to make, emotionally. I felt like I was Buffett, creating my canvas of super individual stocks. But success blurs the distinction between what's "skill" and what's "luck". And I know that I'll be in the 95th percentile, if I'm discliplined, with a portoflio of diversified indexes. Many investors will think they will beat my diversified account of indexes over a 30+ year period. But the vast majority of them will be wrong.

  17. Andrew Hallam

    says on January 21, 2011

    @youngandthrifty

    Hey Young,

    I'm definitely a buy and holder. My money is currently in the markets—just in a different form: 40% bond index, 60% low cost stock indexes. I already owned indexes; I just added this individual stock money to the indexes I currently have. Now I'm 100% indexed with no individual stocks.

  18. Andrew Hallam

    says on January 21, 2011

    @larry macdonald

    You're right Larry. But I'm also looking at the statistical realities as well. The odds are high that I won't beat a diversified "couch potato" kind of portfolio over my investment lifetime. Over 10 years? I've done that. But over 30 more years, not likely. I get the feeling your personal money is diversified among indexes as well. True?

  19. Andrew Hallam

    says on January 21, 2011

    @Money Smarts Blog

    Hey MoneySmarts,

    That would have been a good reason to liquidate. But….I like SE Asia too much to leave. The weather is super!

  20. Mich @BTI

    says on January 22, 2011

    Bald move Andrew. Did it take a lot of back and forth with yourself before getting those sell orders in? After all, these are great companies with dividends and you have a 10 year history with some of them :)

    In which ETFs will the money be distributed?

  21. My Own Advisor

    says on January 22, 2011

    Wow, fun question indeed! $700 K? Really?

    I would have guessed index products.

    But which one(s) Andrew?

    A bit more bonds?

    A bit more equities?

    More Vanguard products?

    Hard to believe you're selling KO, JNJ, WMT, MSFT and other great companies there.

    Are you worried about their dividends? KO pays you over $700 in dividends every quarter alone – enough to buy 11 mores shares every 3 months! That's MAJOR compounding!

    Do you know something about major companies around the world all going bankrupt tomorrow that we don't?

    Mark

  22. Think Dividends

    says on January 22, 2011

    My guess was that you were going to buy $700K of XSB because stocks are expensive these days…

  23. 101 Centavos

    says on January 22, 2011

    Good move Andrew. Before you revealed that you were going into index funds, I had thought you might have wanted to buy a couple of cars in Singapore.

    @ BTI

    Is that a bald move, or a bold move?

  24. Andrew Hallam

    says on January 22, 2011

    @Mich @BTI

    Hey Mich,

    It definitely did take a lot of mental "back and forth" before I did it. I've struggled with the idea since 2005. Trying to think as logically as possible, I recognize the weakness in the long terms odds that I'll beat the markets over my investment lifetime. But I have to tell you: that was one of the toughest things I have ever done because I have easily beaten the market indexes for so long. I've always owned indexes (the majority of my portfolio was always indexed) but my individual stock component was rapidly increasing, to the point where nearly 50% of my portfolio was in individual stocks. It's probably the opposite of what most people would do if they had beaten the markets for so long, don't you think?

  25. Andrew Hallam

    says on January 22, 2011

    @My Own Advisor

    Hey Mark,

    My allocation is the same as it was before: 40% bonds, 60% equities. But now, of course, I'm entirely invested in ETFs. Broad market based ETFs–nothing focused or specialized.

    True, I was getting about $700 in Coca Cola alone per quarter, but I also had a lot of money in Berkshire that wasn't paying a dividend. Overall, I actually receive far higher dividends now than I did before. The ETFs, of course, pay dividends too. And I can reinvest those.

    Truth be told, I don't think as much about the dividends as I did when I was back in Canada. Although I don't have to pay capital gains on my money (because the account and I are based in Singapore) I do have to pay 30% tax on my U.S. dividends, and 25% tax on any Canadian tax/interest.

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