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The Curse of Individual Stocks

The Curse of Individual Stocks

We’ve been under a curse for quite a while now.

The curse of trying to beat the market by buying individual stocks. Up until this year, we’ve never exceeded the returns of any of our other investments.

But maybe, just maybe, the curse has finally been broken.

The Dilemma

I’m no fan of trying to beat overall market returns by buying individual equities. On the contrary, I would rather buy mutual funds.

But due to the inane rules imposed on us (American citizens residing in Canada), we are left with no choice but to purchase individual stocks in our TFSAs (Tax Free Savings Accounts). Like Roth IRAs, all gains grow tax free. The annual limit on individual contributions to TFSAs varies year to year. This year it’s $5500, although the limit has been as high as $10,000 since we’ve lived in Canada.

In addition to mutual funds, we are not allowed to hold ETFs or REITs in our TFSAs. If we want to have any chance of making anything above what the banks are currently paying for savings accounts, our only choice is to purchase single stocks.

The Bad Choices

Before this year, we really sucked at picking individual stocks.

We joked with our family members that we could guarantee them a profit. They just needed to do THE EXACT OPPOSITE OF WHAT WE DID.

If we had just sold a stock, the stock price was going up. And vice versa. If we had just bought a stock, it would only be a matter of days (or hours) before some catastrophic news was released about the business.

Our poor choices led to such epic blunders as:

Buying Kroger (KR), the day before Amazon announced it was getting into the grocery business

Buying US Silica (SLCA) on the recommendation of a so-called “expert”

Buying Ambarella (AMBA) and NOT SELLING 3 months later, after doubling our principal, only to watch the stock tank

Related: Coulda, Woulda, Shoulda – The Tales of Selling Company Stock

A New Approach

This year, we decided to do something different. Rather than relying on our own gut feeling, listening to so-called expert recommendations or doing our own analytical research, we took a different approach.

We let winning mutual funds pick our winners.

We wanted to increase our exposure to foreign growth stocks, but we had no clue how to select the best stocks. So, we turned to the experts: the best-performing mutual funds in the categories of Foreign Large Growth and Foreign Small/Mid Growth, as rated by Morningstar.

The funds:

Buffalo International (BUFIX)

Morgan Stanley Institutional, International Opportunity Portfolio (MIOPX)

Oppenheimer International Small-Mid Company (OSMAX)

Vanguard International Growth (VWILX)

We then based our stock selections on the top 10 holdings of each of these funds.

Several stocks were duplicated in the top holdings of the funds. Alibaba was included in 3 of the 4 funds. Amazon and Illumina were included in 2 of the 4 funds.

Of the top 10 holdings of each of the 4 funds (40 stocks), there were 36 unique stocks.

Since we are limited to certain stocks, only 9 of these 36 stocks were available for purchase in our TFSAs. We are not allowed to purchase OTC stocks or stocks traded on exchanges outside of North America.

The stocks we purchased for our TFSAs are:

Alibaba (BABA)

Amazon (AMZN)

Aon Plc (AON)

Baidu (BIDU)

Booking Holdings, formerly Priceline Group, (BKNG)

Broadcom (AVGO)

Illumina (ILMN)

InterXion Holding (INXN)

NICE Ltd. (NICE)

Returns this Year

Year to date, these stocks are up an average of 19.52% and 11.62%, in our respective TFSAs.

 

 

We have 2 separate accounts, one for me and one for my husband, and we split the stock purchases between the 2 accounts.

 

 

So far this year, our returns for our individual stocks are killing it compared to our other investments:

Vanguard Target Retirement 2030 (VTHRX), 0.45%

Vanguard Wellington Admiral (VWENX), (-1.0%)

Templeton Global Bond Advisor (TGBAX), (-.22%)

Husband’s RRSP (like a 401K), invested in several funds, (0.0%)

My RRSP, invested in Scotia Pacific Rim, 2.45%

Dogs of the Dow, (-.21%)

Dogs of the TSX, (-4.19)

Related: The Dogs Lost Their Bite in 2017

Related: Running with the Dogs (of the Dow)

As with any of our investments, we don’t know if this winning trend will continue. But we’re optimistic.

And through this curse we’ve learned one valuable lesson: gut feelings, “expert” recommendations and our own research can’t produce market-beating returns.

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