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Stock Picker or Basket Buyer? Know the Difference

Feb 13, 2024 7:00:00 AM

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Participating as an individual investor in the stock market is like a day at the races. Do a lot of research - learn about the background of the riders,
owners, and horses. Find out how long they have been racing, and maybe look up their past performance history. It’s fun!

It gets even more exciting as they take a warm-up lap and prance around to show off their withers and racing silks. Some base their bets on solid
research, while others act on hunches or even the color of the rider’s cap.
Anything can happen during a race, and once all bets are placed, all you
can do is watch, hoping your horse will win the race.

The Stock Picker

Managing money on your own takes Time, Temperament, and Talent - the 3 Ts. Ask yourself if you have the spare time, the ability to adjust and make compromises with your plans, and the skill to know when to hold firm or pivot on your own. Sure, you can listen to the talking heads on TV or subscribe to newsletters - they will all tell you what you want to hear, but they are also most likely trying to sell you something.

Picking your own stocks may give you a sense of control, but in the long
run, you might find it tedious and, well, stressful. Learn more here about opportunity vs risk.

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Knowing that you have actively chosen a company, talking to your friends
about it, reading all of the research, and maybe even consulting with your
neighbor who used to work in the industry, you feel confident in your
purchase of shares in a company you believe in. It almost makes you feel
like you are part of that company because you have done your own due
diligence and now own a share of their profits. That sense of ownership can be heady, especially if your pick begins to rise in value.

This approach can be thrilling, but it does come with its own set of
challenges. Those challenges can amplify when your chosen company(s) do not perform as anticipated. Frustration can grow if you are given
untrustworthy information or listen to a certain advice giver on TV - who
ended up shorting the very stock he encouraged everyone to buy.

In the age of instant information, it has become harder to find out the truth. If you have ever searched the internet for the best way to lose weight - you know where this is headed - you will find three medically backed and proven research studies providing that eating more eggs will make you lose weight. But as you continue to search, you will find three more medically backed and proven research studies providing that eating more eggs will certainly prevent you from losing a single pound. The more you search for answers, the less certain you will be of the results.

Add the stress of having all of the responsibility of managing your own
individual stocks squarely on your shoulders to the growing doubt about the research you spent hours on, and it gets a little less attractive to go it alone. As the markets grow into their volatility era, the daily stress of watching your personal portfolio bounce up and down might just be too much. This is where a managed fund might start looking very attractive.

The Basket Buyer

Many believe that the right way to get something done correctly is to hire a professional to do it for you. There are many instances where this holds
true, like medical situations or installing an inground pool. Doing it yourself isn’t always prudent.

Funds come in many shapes and sizes. The mutual fund has become the
most common, with the ETF rising in popularity in the last few years.
Mutual funds let you pool your money with other investors to “mutually”
buy stocks, bonds, and other investments.

  • They offer a wide variety of investment strategies and styles.
  • You get exposure to all the investments in the fund and any income they generate.
  • They are run by professional money managers who decide which
    securities to buy (stocks, bonds, etc.) and when to sell them.

Buying mutual funds can be easy. Many banks and brokerage firms have
their own line of proprietary mutual funds as well as access to third-party
funds. Transaction costs are typically lower because a mutual fund buys and sells large amounts of securities at a time. They are diversified and have the benefit of being managed by a professional manager who performs all of the research and reviews the fund’s performance on an ongoing basis.

ETFs are funds that trade on exchanges, generally tracking a specific index. You get a bundle, or basket, of assets you can buy and sell during market hours.

  • ETFs combine the trading versatility of individual securities with the
    diversified qualities of mutual funds to meet a variety of investment
    needs.
  • They let you access a diverse mix of asset classes, including domestic and international stocks, bonds, and commodities.
  • ETFs can be bought or sold intraday at different prices. Mutual fund
    trades are executed once a day at a single price.

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You might be considering the basket approach for its ease of use and
popularity. They carry a reputation of being less risky, but all investments
carry some level of risk. Mutual funds and ETFs also carry some
disadvantages:

  • Tax inefficiency
  • Poor trade execution
  • Restrictive
  • Too hands-off
  • Passively managed

Why wouldn’t you want to have more say in your investments, and how can you have the benefits of a mutual fund or ETF without becoming just one of thousands of investors in a giant conglomerate? Separately managed accounts (SMAs) might be what you are looking for.

Four Reasons Why SMAs are Great for Investors

SMAs

SMAs offer many advantages over mutual funds and ETFs - especially when it comes to taxes. Mutual funds can generate a lot of taxable events. The profits and the losses are passed directly to you, the investor. More often than not, you will end up owing capital gains taxes on a fund that actually lost you money.

Vineyard Global Advisors offers 12 fee-only, actively managed,
including hedged and long-only investment strategies via
separately managed accounts.

Learn more about the advantages of Separately Managed Accounts that
include:

  • Customized investment portfolios
  • Tax smart planning
  • Insight and transparency
  • Professional management
  • Risk-managed diversity

“The way risk is handled can have a
substantial impact on an
investor’s ultimate success. Our approach
for all Vineyard strategies involves
applying layers of protection as needed in
response to changing market conditions,
with the goal of providing the most
protection during times of significant
market deterioration.”
Vineyard Global Advisors-Our philosophy

 

View Our Strategies Contact Us Today

Investment advisory services are provided through Integrated Advisors Network, LLC (“Integrated”) a registered investment advisor. Registration does not imply a certain level of skill or training. Vineyard Global Advisors, LLC is a practice group of Integrated.

The opinions expressed herein are those of Vineyard Global Advisors and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forward-looking statements cannot be guaranteed. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Vineyard’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. Vineyard Global Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Investment advisory services offered through Integrated Advisors Network, LLC (“Integrated), a registered investment advisor. Vineyard Global Advisors is a DBA of Integrated.

Investors cannot invest directly in an index.

There is no guarantee that the investment objectives will be achieved. Moreover, past performance is not a guarantee or indicator of future results. Does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations.

Integrated is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Business is only transacted in states in which it is property registered or is excluded or exempted from registration. A copy of Integrated's and VGA's current written disclosure brochure filed with the SEC which discusses among other things, business practices, services and fees, is available through the SEC's website at: www.adviserinfo.sec.gov

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