Our case for owning stock

It’s widely known that retail investors have been net sellers of stocks during the 2009-2013 rally. As a corollary, we have witnessed an explosion of interest in exchange traded funds (ETFs), which many investors view as a natural evolution of portfolio management in an Internet age. Whether driven by macroeconomic fears, reduced trading costs, or disillusionment over a decade of volatile equity performance, more investors believe their needs can’t be served anymore by holding shares of companies and instead are opting for big-picture approaches.
One look at your Trust Company portfolio will reveal on which side of this debate we firmly stand. To us, a basic approach to investing, owning strong, growing companies, and letting the companies’ growth increase portfolio value over time, gives you the best chances of satisfying your financial goals. Despite the proliferation of financial innovations, with investors swapping into new products ever more frequently, the proportion of investors keeping up with benchmarks has not risen apace. New financial products have generated fees for their creators and purveyors, but have yet to add positively to the returns of investors themselves.
Somebody needs to look under the hood
The banking industry found itself in serious trouble packaging and trading mortgages without screening the contents of these packages. Now we see investors being tempted to do the same with ETFs, gaining “exposure” to a theme, asset class, or sector without taking the time to understand what underlying securities they own. To us, every asset in a portfolio must be scrutinized, in isolation, and its risks and potential rewards well understood. The chief role of a securities analyst is to value holdings and determine the rate of return each investment can deliver over time. It is better to pass up an investment we can’t take apart, piece by piece, than to own something we have a hard time valuing. The buck stops with us.
It’s better to “own” than rent
Though more investors crave the simplicity of owning a basket of ETFs, the reality is that these same investors are tempted to trade their ETFs at rapid rates and dance in and out of asset classes to attempt to time their returns. Owning shares of individual companies, in contrast, should be a highly selective process, a partnership between shareholders and management that is broken only when the company does not live up to expectations or when the shares become fully valued.
Packaging of financial products benefits the packagers
While marketed as cost-effective ways for retail investors to invest passively, ETFs have morphed into hedging vehicles that allow traders to buy an ETF while simultaneously shorting the stocks held in the ETF. This exposes retail investors to technical trading whims they should be avoiding. There are already thousands of ETFs to choose from as hyper-competition has taken hold, so the initial benefit of ETFs is becoming a marketing race to the bottom, adding to investors’ confusion and stifling returns further.
Stocks allow you to keep control
We think it’s vital for investors who are following long-term plans to control their destiny as much as possible. It is much easier to attain, say, a 7 percent long-term return by hand-selecting individual companies growing at 7 percent rates than to spray money over dozens of investments that were not packaged with your needs in mind.