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



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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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andrew hallam

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

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50 Responses

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

  2. BadCaleb says:

    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. 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:

    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. To buy $700K worth of lottery tickets?

  6. @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. @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. @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. @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. @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. @Andrew Hallam

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

  12. 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. 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. 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:

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

  16. @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. @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. @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. @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:

    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. 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:

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

  23. 101 Centavos says:

    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. @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. @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.

  26. @101 Centavos

    Hey Centavos,

    Have a look at my mugshot. It was a bald move and a bold move.

  27. @Think Dividends

    Hey Think Dividends,

    No, I'm not a market timer. The money never really left the markets—it was just switched into ETFs.

    There's only one guarantee now. I'll beat more than 90% of investors, no matter what, over my investment lifetime. And I like those odds.

  28. Marco says:

    Hi Andrew,

    Just make sure that the ETF's you decide to invest in are not too heavily weighted in a specific sector. I still believe that due diligence is required even with ETF investing, almost on par with single-stock investing.

    Marco

  29. Jean says:

    Thanks for sharing your thought process and decision, Andrew, as I imagined you'd have gone completely over to indexing. It suggests to me that you are "walking the talk", when it comes to considering the risks, the odds and what you've shared with many about one's retirement income (especially if you can't count on a pension). It's also made me realize I need to transfer my other mutual fund shares into my seven-month old portfolio of index funds – keeping in mind the investment lifetime and long-term goals. . . . I prefer the indexing odds, so thanks for the "kick in the arse." :-)

  30. @Marco

    Those are wise words Marco. My ETFs are very broad based only, and cheap. I only have three of them, but I've captured the world with them!

  31. Hey Andrew,

    Thanks for responding and the details. Broad-based ETFs (no sector) specialization make sense. ETFs do pay dividends too, no doubt.

    I agree, you will beat 90% of investors over the next 20 years with your investments, but I can't help think part of the reason you're in the position you're in, you bought and held quality companies that pay dividends. You used that to your advantage for many years and it's served you well for this transfer strategy. I agree with what another commenter said, you are now certainly walking the talk. Integrity in life is right up there with a handful of other quality traits – great stuff.

    Geez, how is your next post going to top this news? :)

    Cheers,

    Mark

  32. pgreensoup says:

    I can't help but feel a little bit disappointed about this development. I mean, sure, it makes sense. But I kind of feel like a super hero that I've been rooting for is hanging up his cape.

  33. @soup – I'd rather equate Andrew with Peter Lynch than Bill Miller. :)

    Mike

  34. @My Own Advisor

    You're right Mark,

    Many of those stocks did add nice gains to my portfolio. But I have to believe that I've had a lot of luck with those and other factors have likely played a higher role in the money I've accumulated. I've saved money like crazy (and when I was younger, I was a savings fanatic) my job pays me well (which didn't hurt my savings, post 2003, when I started teaching in Singapore) and I have always had a (relatively) dispassionate view of stock market movements, letting me take advantage of cheap prices when most people were afraid. I think you can follow the same philosophy with indexes. There's little chance of making a wrong move then. Although we look back today at 2008/2009 and see that it appears like a no-brainer for investors wanting to average down on their costs by taking advantage of cheap stock levels, doing so was still harrowing. The news media was giving me ulcers as I was buying. Of course, we know what history says: broad based world markets will eventually recover. But when people smarter than me, in the media and in the academic world are saying, "this time it's different" (as they ALWAYS do) it does strike the fear button, just a tad… Next time–and I really do hope we get another market bath sometime in the next decade—I'll be able to rebalance aggressively with stock indexes instead of individual stocks. That would be a lot easier! And coupling the ability to do that, with the low cost realities of indexes, could put me in the 98th percentile as a long term investor. And that sounds better than fine to me.

  35. @pgreensoup

    P Green,

    I still have the investment club to do my best in my battle against the index. But as I've always said to my fellow investment club members, every year, the odds of maintaining an advantage (especially such an outsized advantage) over the S&P 500 are slim, going forward.

  36. How very exciting!

    Can't wait to find out the answer.

  37. @Money Smarts Blog

    Hey Money Smarts,

    Can you imagine how much money very long term shareholders of Fidelity Magellan would have made it they indexed that money when Lynch retired? Wow!!! They could have rested on their huge gain, and after taxes and survivorship, rode along in the 95th percentile from then until today (in terms of relative performance). Instead, they crashed and burned. Point taken about Miller. And I can tell you this: that man is 1000X smarter than me.

  38. smart move, I suppose you bought Vanguard but which ones ?

  39. @cynical investor

    Hey Cynical,

    Thanks for commending the move. Loads of friends thought I was crazy. But I don't think so. I'll put up a post soon, describing what I bought.

  40. BadCaleb says:

    My guess is that most is going to VTI and maybe sprinkling on VEA. XSB would be the third index in your portfolio. Looking forward to the next post for the conclusion to this cliffhanger.

  41. @BadCaleb

    Hey Bad Caleb,

    You sure nailed it. That's exactly what I did. Do you own something similar?

  42. RG says:

    In fact I'd done the same with my 401k end of last year. All of mine in one Vanguard Tot. Stk. Mkt. I took this action right after reading the book "Random walk down the wall street."

  43. @Andrew Hallam

    Yup – But who can pick the top?

    I agree that Miller is bright guy and undoubtedly a good investor. But his luck ran out eventually…

  44. gibor says:

    Why XSB and not CLF? CLF has lower MER , higher dividend and smae class of bonds?

  45. @Money Smarts Blog

    Excellent point MoneySmart:

    The irony is that nearly all of us think we can be in the top 10% that beats the market. But 90% of us are wrong. I'd say half of that 10% will find their way there thanks to luck. The other 5% will be a combination of luck and skill. I don't like those odds. And I know how to automatically put myself in the 90th percentile, perhaps higher after taxes and "self-destructive investment behavior" takes its respective bites out of the vast majority of investment accounts.

  46. John Papers says:

    Wow !! really nice blog. It will be very useful for me. So, thanks for sharing this post.

  47. BadCaleb says:

    All of my US investments are with my previous employer's 401k plan. They have some similar investments but in mutual funds, the equivalents are: Vanguard S&P 500 index (0.025% mer), Vanguard Extended market (0.05%) and Spartan Int'l (0.10%). I wish they had rounded it out with an small cap index but I'm not complaining. I am very lucky that they have such great selection and it's dirt cheap.

  48. @gibor

    Thanks for the tip Glibor. When I first bought my bond index, I wanted something really short (3 years max) which is why I went with XSB as a short term (1-3 year bond index). I've owned it for years. CLF looks like a fairly recent index (2008) so I guess I should keep on top of new indexed offerings. But now I have a dilemma. Stay put, or switch from XSB to CLF (thanks again for suggesting the option) Based on the size of the sale I'd have to make (nearly 600K worth of XSB) I'd be crushed by commissions. I do have a discount brokerage charging $25 for regular trades, but a trade like that would cost me about $600 to move it. That said, I'd save roughly that amount in the first year, based on the lower MER, which costs 0.1% less. However, my dilemma also relates to the terms of the Claymore bond fund. It's a 1-5 year bond index. And I don't think I want to have a 5 year component if/when interest rates rise. Do you know of anything shorter, that's also cheap. Anyone else? I'm all ears for a recommendation of what you'd do if you were me. Cheers! And thank you Gibor!

  49. @BadCaleb

    Hey Bad Caleb,

    It's fabulous that your employer offers those. To my knowledge, no overseas teaching establishment (I'm a teacher in Singapore) has offered an indexed investment solution. We have two groups that service the teachers at my school. One deals with American Funds, charging 5.75% to purchase funds, and the other (Raymond James) often charges a wrap fee of 1.75% annually to own baskets of advisor-selected mutual funds. It breaks my heart to see those kinds of fees. I'm hoping to hit the international teaching circuit with my book so I can help educate people. Your employer sounds like they're on the ball. That's so great to see!

  50. @John Papers

    Cheers John,

    Thanks for stopping by

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