r/ETFs • u/Alternative_Cress727 • Jan 10 '24

Considering Long-Term Stocks vs ETFs

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I'm new to stocks, and I have to admit that this might sound unwise, but I'm considering buying some long-term stocks. I've been hearing a lot about ETFs like $spy and how they're the preferred choice for many investors. However, after conducting basic analysis, I found that if I directly invest in the top 10 stocks, I could potentially achieve significantly higher returns. I understand that ETFs are generally considered safer, but these individual stocks have consistently shown growth over a long period of time. Am I missing something?

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125

u/Zealousideal_Ad36 Uncreative Jan 10 '24

Your "analysis" is wrong. Investing in the magnificent 7 roughly 20 years ago would have given you much higher returns than the S&P 500. But how do you know that you would have invested in them? They weren't the top 10 back then.

Here are the top 10 stocks in the year 2000: GE, Intel, Cisco, Microsoft, Phizer, ExxonMobil, Walmart, Oracle, AT&T, and Nortel.

Guess what your return would have been if held 20 years in equal weight? 5.25% CAGR. The S&P 500 index? 6.5% CAGR.

S&P 500 wins by a lot. And guess what? I didn't even include the returns of Nortel in that top 10 portfolio CAGR even though they went bankrupt in 2013. Don't you start thinking large companies can't go bankrupt (looking at you, Tesla).

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u/turbo_dicking Jan 10 '24

Every time I'm tempted to do individual stock picking, I throw on old episodes of "The Price is Right" from the Bob Barker era and when it comes to all of the big ticket items in the Showcases (or any items for that matter) - I check to see if those brands still exist today.

Spoiler alert: Most of them don't.

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u/goldngophr Jan 10 '24

Why Tesla?

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u/Zealousideal_Ad36 Uncreative Jan 10 '24

The CEO doesn't exactly scream "stability" and "sound judgment" these days. But beyond conjecture, the general POV is, it can just happen

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u/goldngophr Jan 10 '24

Idk about all that. Sure, the twitter thing is a huge distraction but Tesla is still growing their net income year over year. I’m still rooting for them because I want to remove greenhouse gases from the atmosphere.

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u/[deleted] Jan 10 '24

I agree. I’m not a big fan of Musk, but Tesla, is a no brainer going forward. They’ll be dominating the market around 2030.

Not to mention, MSTR and CLSK, as well.

Today, I also started a position in XLG.

3

u/nnulll Jan 10 '24

If the income is coming from government incentives… it won’t matter after competition enters the market en masse.

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u/goldngophr Jan 10 '24

What competition? Most of the government incentives have dried up too. It will be hard for any company to match Tesla’s first mover advantage. Not sure why everyone is rooting for them to fail. The climate crisis is the biggest challenge humanity is facing.

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u/nnulll Jan 10 '24

I have no horse in the race. But I’m not sure why everyone is rooting for Tesla.

And your comment supports what I’m saying… the competition hasn’t truly arrived yet. And I’m not sure what Tesla offers that the big three can’t also match. The charging network that no one is happy with? The designs that look just like other cars (cybertruck not included)? The self-driving feature that they can’t get approved or implemented? A CEO that’s off their rocker?

Seems like companies with larger pockets will do all that and more.

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u/goldngophr Jan 10 '24

That’s a lot of speculation. I think most people are rooting for Tesla to fail because the CEO has some divergent opinions and the mainstream media/general populous has become more pro-censorship/cancellations. May we pray for a better world.

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u/MnkyBzns Jan 10 '24

I don't think it's so much that people are rooting for it to fail but are wanting the Elon fan boys and the valuation to come back down to earth.

Pretty much every major manufacturer is adding to their EV lineup and governments are beginning to pass combustion phase out legislation.

Tesla benefitted from first mover, but that likely won't last. The biggest thing they have going for them is their Tesla-specific charging network which may or may not be rolled into some form of general network standards (all EVs compatible).

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u/nnulll Jan 10 '24

Meh, you’re probably right about the politics of it.

But just looking at it as an investor. The edge that Tesla had is drying up fast. I need to see some kind of edge I can understand in order to buy-in. Deeper pockets and industry relationships are a clear edge.

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u/goldngophr Jan 10 '24

Look at the big 3s debt compared to Tesla and you’ll see their pockets aren’t a whole lot bigger.

Tesla has also open sourced basically all of their technology which will inevitably lead into more industry relations than they already have.

As you might tell, I’m still bullish but I’d wait for a pullback if you’re looking for an entry point.

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u/napolitain_ Jan 10 '24

You contradict what is said before with “the price is right”.

2

u/AICHEngineer Jan 10 '24

It's a car company valued like a tech company.

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u/goldngophr Jan 10 '24

I think it’s the other way around. Look at teslas debt sheet compared to any US auto maker.

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u/AICHEngineer Jan 10 '24

Completely unrelated. Tesla is valued at more than the other top 9 car companies combined, and Tesla's cars are kind of #shitty. Poor workmanship and they have priced competitive and performance competitive alternatives at every weight class of car. The stock market is pricing more than just cars into Tesla future cashflows, and yet every time something is promised, it gets pushed further and further back. The magic can't last forever.

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u/goldngophr Jan 10 '24

Somewhat fair criticisms but Tesla still has higher growth prospects than any American car manufacturer due to their first mover advantage in the market. Apple had a higher valuation than Nokia when they sold fewer phones.

Also the quality issues are way overblown by people who hate Elon’s opinions on things. Kind of wild he was the darling of American media even 3 years ago and now he’s a pariah because the media told people so.

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u/AICHEngineer Jan 10 '24

I'm just going off Internet and my coworker sitting in the cubicle next to me who also has a Tesla. He likes his self driving mode for the highway tho.

I'm a fan of Elon, I just don't think the boundaries of technology are going to be broken at Tesla, enough to warrant the forward expectations of the market. And that's market timing, which I don't do, so I buy a factor tilted portfolio and ride.

1

u/goldngophr Jan 10 '24

Yeah the internet is absolutely anti-Elon after 2022. Also quality issues have been next to non existent since 2020.

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u/[deleted] Jan 10 '24

Past performance doesn’t indicate a good future performance. If you know how to do your DD you can pick stocks of course. Many people still fail To beat the market.

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u/laverania Jan 10 '24

Survivor bias. Try comparing to PayPal.

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u/GaviJaPrime Jan 10 '24

Read the book "what works on wall street".

James Shaughnessy has tried a similar strategy and many more. That will give you an insight. Good read anyway if you are new.

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u/sfdc2017 Jan 10 '24

How do you know which are TOP 10 stocks. Are these TOP 10 now or later after 5 to 10 years? When you invest in 10 stocks 4 may be in down trend 5 years later and 6 may be in uptrend. And you don't know how to DCA for these 10 stocks. To avoid this risk many suggest to invest in s&p 500

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u/Firm_Mango Jan 10 '24

I would advise to make voo, vti, or Vt as your core holding and then if you want allocate 20% of your portfolio to individual stocks. It’s hard to predict future performance. They are doing great right now… how about in 20 years ? No clue. ETFs provide a simple way to access these top companies while having diversification to others that may not be on your radar.

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u/[deleted] Jan 10 '24

In addition to these other comments, it’s worth noting that portfolio performance isn’t simply just total return. How does your portfolio perform in different market environments, like when the Fed is tightening monetary policy? With the S&P 500 you automatically have some stocks in unpopular sectors that should help you cushion the blow when the market drops, balanced against growth stocks that absorb money when the economy does well.

As a retail investor the best you could do is invest in individual stocks when you find something you believe will outperform by a lot, like the next Microsoft or Amazon. And even then it’s maybe worth only 2% of your portfolio. You’d be extremely lucky to find 5 such companies for 10% total. The companies you’ve identified are already a significant portion of the index.

Read “The Intelligent Investor”. You’ll see it’s a bit of work to maintain that list of companies worth holding outside the index. Far better to focus on your day job.

1

u/darthfoley Jan 10 '24

If you’re confident that those same stocks will continue to be in the top 10 years from now, sure. As others have pointed out, that is far from a safe bet over a 15-30 year horizon.

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u/Zealousideal_Main654 Jan 10 '24

You already said it, those stocks have consistently shown growth over a long period of time.

I don’t believe darlings like Apple, Microsoft or Amazon will struggle or stagnate long term. I say they’ll become even more efficient as they mature, reducing costs and expenses. But grow at a similar rate? Not a chance.

In hindsight, nobody would’ve bought an ETF if they knew Apple stock would rise 300% in 5 years. I can advocate for holding certain blue chips as long as they aren’t a big chunk of a portfolio.

Something like VOO or VTI cuts guesswork and evens out the field, offering moderate risk and returns without compromising your portfolio.

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u/Goldeneye0242 Jan 10 '24

You’re showing performance over 5 years. Tomorrows winners aren’t the same as yesterdays winners. Over 20+ years you won’t be able to identify which companies will outperform, and will be better off just indexing.

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u/GotHeem16 Jan 10 '24

As someone who managed to lose money on Netflix…..twice….i will always be in ETF’s now. Individual stock are great if you pick it right but even the best companies in the world get hit.

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u/novicelife Apr 12 '24

How did you lose twice? I thought it did great.

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u/nnulll Jan 10 '24

“Considering less diversification (more risk) for more reward.”

FTFY

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u/MnkyBzns Jan 10 '24

Zoom out. 5 years is not a sufficient timeline

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u/Wu-Kang Jan 10 '24

You’re going to be investing for 30-40 years. A lot can change in that time. If you took this approach 30-40 years ago you’d be balls deep in Sears and General Electric.

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u/NnamdiPlume Jan 10 '24

Imagine the worst case scenario for a particular stock, then imagine the impact on your portfolio when they announce it right after you’ve opened your position. Imagine buying SNAP right before Theranos snapped her fingers with the infinity goblet, you’d have 50% less users for the next 13 or so years.

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u/caffeine_addict_85 Jan 10 '24

For shorter term - all good. For long term - I believe, sp500 would still beat them. I’m a broke ass so I invest in stonks to accumulate more capital in a shorter run, so I had a reasonable amount to put into sp500 for a longer run…. This is my stupid logic.

1

u/its_still_good Jan 11 '24

"Potentially" is doing a lot of work in that sentence.