5 Advantages Of Investing In Individual Stocks:

As a Portfolio Manager I prefer investing in Individual Companies over Mutual Funds and ETFs as Tools of my Trade. If I need to cut a board, I need a saw, not a wrench. If I need a hammer, a screw won’t do. Investing in individual companies in a portfolio is the same. It is important to understand that individual equities can be riskier than some other investments because while all stock market investments can be volatile, and lose money, owning individual stocks increases the potential to own a greater concentration of the sectors, or individual companies that are not working at any given time; however, I have found that with diligent research and having a discipline for when to buy, hold and sell, taking a more concentrated position in my investment ideas can be profitable. I believe when managed properly for suitable investors, owning shares of individual companies’ stock as part of a diversified portfolio of world class companies may have the following advantages:

1. Using Individual securities allows me to focus investments with favored companies and investment themes without diluting the ideas by investing in everything in an index or buying the entire market.
   If you own a portfolio of Mutual Funds, or ETF’s you can literally own thousands of companies with only a handful of tickers. Even with a handful of investments, you may end up owning a portfolio which closely mirrors a broad index like the S&P 500. A manager could be doing this coincidently, or on purpose, called closet indexing. I believe if clients are paying for my expertise, it is my obligation to try to improve performance over the broad indexes, as well as have a plan in place for downside protection and tax minimization.
2. Cost and Transparency.
   I often hear from prospective clients, their advisor, or portfolio manager charges X percent and they have no idea they may be paying another 1 to 2 percent in addition to the “Management Fee” in other costs. Further, these other expenses may not be spelled out anywhere, not verbally explained and they may not be reflected on their monthly statements. As a result, a client should ask if they are paying internal expenses, commissions, hidden spreads, or markups on transactions in their accounts on top of what is being referred to as the “management fee”. I believe all cost should be clear and transparent.
3. Taxes.
   Individual stocks are only taxed on realized gains and dividends paid during the period an investor owns the shares. This is unlike other investments where investors can be taxed for gains which occurring prior to them owning the investment and which they did not benefit from. With mutual funds you could be accessed a taxable gain even while you have loss. There are effective strategies to help reduce taxes in managed portfolios. For example, if you do have a loss on a company, you may have an opportunity to sell the position, and buy another company in the same area, if desired, and use this loss to offset other potential gains in the portfolio. By harvesting your losses quickly, you may reduce the risk of a larger loss and use this tax loss to offset other tax liabilities. If after 31 days you want to own the company again, you can purchase it without impacting your realized tax loss. This is only one example of how you can help mitigate taxes in a portfolio. Individual stocks can also be used to generate income through “qualified dividends”, these are dividends from Qualified companies which are generally taxed at lower tax rates than other types of income investments. This may be helpful when implemented as part of a diversified income strategy.
4. Individual securities give the manager the ability to provide client customization.
   Some clients have strong feelings and want their investments to reflect their convictions. For example, if a client does not want to own tobacco stocks, or companies which may contribute to global warming, we can exclude these companies from a client’s portfolio. More than ever, some client may have strong feelings about the environment and do not want to own carbonbased companies or may wish to include companies focusing on alternative energy, or companies whose management has good female representation, or equal pay. Using today's sophisticated trading software, we can customize stock selection.
5. Individual securities can be increased or decreased in a portfolio during turbulent market conditions and complimented with other investments to assist downside protection and reduce portfolio volatility. Investments can also be adjusted when more income is needed, or the type of income being generated can be shifted when clients are in high tax brackets.
   As a discretionary portfolio manager, I can add value by executing trades using limit orders, using stop losses, and have a plan for navigating volatile periods in the markets with hedging strategies. I believe it is much easier to implement downside protection with individual securities than when using most other investments.

I enjoy researching companies and have a passion for the markets. I find clients get pleasure and feel a sense of pride in owning individual companies which may make the products and services they use every day, or which may shape their futures. If you would like to learn about the Hoffman Private Wealth Group, their portfolios, or their client experience, click on the link below to schedule a No Cost, No Obligation introductory meeting.

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Minimum Investable Assets to hire the Hoffman Private Wealth Group is $500,000.00.

Todd M. Hoffman CFP^®, CPM^®

Founding Partner
Executive Managing Director
Senior Portfolio Management Director
Wealth Manager