Do I Regret Selling Stocks Worth $700,000?

Jason’s dad was restoring a 1957 Corvette.

It took him years, but by the time he finished it, Jason was able to take the car to his high school graduation.

Less than a year later, Jason’s dad sold the car.  I never understood that.  How could he sell something that he spent so much time building?

It wasn’t about the money.  As he explained to me at the time, the fun was in building it, not in possessing it.

I can’t claim to be that handy.  Last night, a bulb in our bathroom went out and I crushed it while trying to remove it.  By the time I grabbed a broom, my wife had taken out the bulb’s broken remnants, and replaced it with a new one.

I’m not useful around the house.

But I did handily stockpile $700,000 in individual stocks.   I also had an international stock index and a bond index, creating a total account value well into seven figures.  But the stocks….they were lovingly added over years of painstaking research.  And they were worth—alone—about $700,000.

That said, on January 20th, 2011, I sold every single one of them.

No, I wasn’t trying to time the market, expecting it to drop.  I just came to the conclusion that over the long term, my stocks would likely lose to a bunch of indexes.

Pride told me to keep the stocks.  But my head told me to sell them, in favor of a total stock market index.

I had to be honest with myself.

If my individual stocks lost to the market index by just 1% per year over 20 years, I would be giving away nearly $400,000 to my pride.  That’s the compounding difference that $700,000 would have over 20 years, adding (or subtracting) a single percentage of interest per year.  You may be suggesting that I could beat the market by 1% per year, and have a $400,000 bonus.  But think about the odds of that?  I did.  And the odds aren’t great.

I vacillated over the stock selling decision for years.  And when I finally decided to go for it, I had to do it quickly.  Some of my fellow finance bloggers suggested that I was impulsive, while others commended the move.

My wife, however, was very upset.

Maybe that’s how Jason’s mom felt, when she came home from work and found that her husband had sold his Corvette.

For one week, I felt hollow.

I knew that it was the right decision, but my wife didn’t support it.  She did drop the issue, however, when she saw how much it affected me emotionally.  I’ve cried three times in the past fifteen years:  when my dog died, when I felt overwhelmed by cancer, and when I sold those stocks.  OK, I didn’t weep like a baby, but a tear came down when my wife leaned into me for selling them.  She didn’t care about the money itself.  But she saw how much effort went into building my “Corvette”.

I didn’t buy stocks like the average person.

I knew that, and she knew that.   If I was interested in a business, I ordered ten years of annual reports, then read every word, starting with the juicy stuff at the back (lawsuits, back taxes owed etc)  Data like dividend increases, sales increases, net income levels…they were just a starting point.  I took ages to make a stock buying decision, and I typically bought my stocks when nobody else wanted them.

Only once, during the past decade, did I gamble on something silly.

I bought AIG shares in March, 2009—believing that the government wouldn’t let it disappear after it took such a large interest in AIG.  I made about 300% on the shares.  But that was peanuts.  I invested a tiny amount.

In contrast, my largest holding was a huge commitment (Berkshire Hathaway) worth $363,853.56, according to the sale transcript I have in front of me.

I never bothered to really look back.

I never bothered to see how those stocks would have done if I had held onto them.  I never bothered to compare them to the U.S. index that I bought with the proceeds.

But let’s have a look, shall we?

Berkshire Hathaway

I sold 4,500 shares of Berkshire Hathaway, at $80.89 per share.  The proceeds went into the U.S. stock market index (VTI)

If that $363,853 were invested in Berkshire Hathaway today, it would be worth $321,165.

Putting that $363,853 in the U.S. stock index gives it a value of $349,299 today, including dividends.

The others

The U.S. index is down 4% including dividends, since January 20, 2011.  How about my other former holdings?

I’ve used Morningstar to compare prices, and I’ve estimated the dividend impact:

  • AIG (-45%)
  • Fastenal +10.2%
  • Johnson & Johnson +4%
  • Coca Cola +10.6%
  • Microsoft (-7.8%)
  • Pfizer +3.1%
  • Simpson Manufacturing … (-11.3%)
  • TJX Companies   +15%
  • WalMart   (-2%)
  • Royal Bank of Canada  … (-4%)

As you can see, seven of my eleven holdings would have beaten the index.

Because there was such a minor amount invested in AIG, you could suggest that seven out of ten of my previous (serious) holdings beat the market since January 20th.

Selling Berkshire Hathaway at $80.89 and buying the total stock market index with the proceeds has me roughly $25,000 ahead of where I would have been.

But holding Coca Cola and Johnson & Johnson, instead of the index, would have given me about $14,000 more (if I still held the stocks).

Without getting into comparing every stock’s weighting, I’m going to guess that my portfolio would be slightly larger today, because of my switch into indexes.  Having said that, my largest previous holdings (other than Berkshire) have all beaten the market since January:  Coca Cola, Johnson & Johnson, Pfizer and Fastenal, while the Royal Bank (of which I had $60,300 invested) has kept pace with the market.

As we all know, however, short term comparisons are meaningless.

The bottom line is this: Do I feel good about having a fully indexed account?  Yes.  And that’s all that matters.

How about you?  Do you have a higher percentage of your assets in indexes or individual stocks? 

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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12 Responses

  1. Moneycone says:

    Wonderful post Andrew written with passion!

    Indexing reduces risk and keeps emotion out of investing and both are key to profitable investing. You certainly made a hard, but right choice.

  2. Thanks Moneycone,

    I have to admit that I do enjoy how easy investing has become since I indexed everything. I never have to worry about what I'm going to buy, and I like that a lot!

    • Nu2this says:

      Do you not have times, Andrew, where you are tempted to buy a stock for your own portfolio at a price that seems too good to resist? Especially since you are still actively involved in researching stocks for your investment club.

      • Hey Nu2This!

        That's such a great question. When I sold my stocks, I thought I might get tempted to buy a few stocks in the future. But perhaps having the investment club curbs that temptation. I can still look into companies, and buy them for the investment club. But I haven't been tempted to buy any of them for my personal account.

        What about you? Do you have a "set" investment philosophy, or are you a bit more fluid than I am?

  3. Buck Inspire says:

    Great article! I'm sure it was tough to do, but I admire how you now can objectively review the move without going crazy and buying all your stocks again. I am more of an indexer myself and I have less headaches. Good luck going forward!

    • Hey Buck Inspire,

      Thanks for the support. Yeah, at the time, it was a tough decision….but when I ripped off the band-aid, I did it quickly!

      You mention that you're an indexer. Do you have a small part of your portfolio for a few individual stocks as well?

  4. Drizzt says:

    i never expected to find such a unique Singapore based blogger here. I do run a Singapore Investment Blog myself and its an inspiration to hear your story. I wish that one day i can do what you do.

    Just curious, which account do you hold to invest or your index stocks?

  5. Nu2this says:

    To be honest, your investment philosophy makes sense but I still haven't gathered the courage to implement it. At this point I'm waiting for your book to come out so that I can learn even more. As my Username implies, I'm new to this investment philosophy.

    I know it's wishful thinking, but I'd love to see the market rally a bit if we see QE3. I'd be happy if my stocks got back to what I paid for them. I'd then sell them, buy bonds (I have none) and hope the market tanks again.

    As you can see, I not a savvy investor like most of those responding to your blogs! I'm just being honest. I know I have much to learn.

    Mark

  6. Once again, a fantastic read. Your paragraph about the three times you cried really hit home. You've had some tough roads to cross and your perseverance is inspiring.

    I'm an individual stock investor but I truly admire your indexing strategy. Making the bold move to dump your stocks not only took courage but it really allowed you to put your investment philosophy to the test.

    Forget the fact that 7 out of the 11 holdings would have beaten the index; you're employing a strategy that works for you and your seven figures speaks for itself.

    Once again, a great post. No bones to hide, just straight up money talk.

    Cheers,

    TWC

  7. Great read and article Andrew.

    I have a question for you:

    Although the indexing is now "easy" for you, isn't there a part of you, a big part of you, that doesn't want to 'beat the market" but instead ride it with even a couple dividend-paying stocks simply for the active-investing pleasure?

    Is there no desire for you to say, have a little competition with yourself, put $10,000 into the S&P 500 and $10,000 into Wiley (for an example), just to see what comparative returns will yield you (literally :), in another 10 or 20 years?

    I know you never have to worry about "what you're going to buy" but then again, with only 50 quality U.S. dividend-paying stocks available, that list isn't that long either 😉

    Thoughts my friend?

  8. That's a great question Mark.

    Honestly, before I indexed everything, I figured that I might be like an alcoholic who banned himself from the wine cellar. I figured that I would perpetually crave individual stocks!

    But it hasn't happened. I do manage the investment club portfolio, so perhaps that gives me the small outlet I need.

    My pulse never raced in excitement when I bought individual stocks, so that might be one reason I'm able to stick with a pure indexing strategy…without missing stock picking. Sometimes my pulse raced in fear, but never excitement.

    Does this make me weird? Maybe it does!

  9. The Dividend Ninja says:

    Andrew, great post!

    I remember reading your post a while back when you sold your 700K of holdings, and my first thought was (fill in the blank)? But in reality you certainly sold them at a good time. The more I thought about it, the more I realized it makes sense, especially with your awesome profit strategy of rebalancing your stock index and bond index funds 🙂 I'm glad you crunched the numers to see where you are at…

    The one thing that stops me from going all in with indexing, is the dividend income of course, and the 4.67% return per year I receive in dividends and bond distributions. But with ishares XIU paying a nice 2.5% yield, and bond ETFs also with generous yields, it does make me wonder sometimes 😉 You never know…

    Like yourself every time I buy a stock I'm nervous, not exhilerated.

    btw

    I really enjoyed the recent articles about your sister and her kids, and the couple you teach with!

    Cheers

    The Dividend Ninja

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