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A good example of why you shouldn’t try to pick stocks

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This is a great example of why you shouldn’t try to pick individual stocks.

Just because you can write down a top-of-mind analysis on a napkin doesn’t mean you understand a company’s financials. And remember, most professional investors — who are paid millions of dollars per year — can’t either. Investing is not about picking stocks. TELL YOUR FRIENDS THIS.

My Prognostication Failed

“Five years ago I had a friend who was sitting with Netflix stock which had increased in value by 500% when he came to me and asked for some advice: Should he sell? My response was yes based on the following criteria.

Strong Competition– Blockbuster had recently entered the fray; they had a strong competitive strength with their local stores and had plenty of money to target Netflix. I figured even if Netflix did win the costs associated with acquiring and retaining subscriptions in a competitive atmosphere would erode substantial earnings.

Digital Transition– At the time 5 years ago many were predicting a strong push to web based content delivery. It made a lot of sense and would have an impact on Netflix. Expectations were that strong players like Microsoft, Google, Sony, and Apple would crowd out Netflix.

Content Acquisition– With the digital transition I expected consumers to transition to watching web video. As such, companies interested in this market would need to negotiate new deals with the film companies. The Netflix model is somewhat disruptive and they lacked strong relationships with the film companies. This would require a hurdle that Netflix would have to overcome, which introduced substantial risk.

Increasing costs of doing business– Netflix’s primary model was based upon delivery by mail, the more customers used the service the more expensive it would become. Additionally the US Postal Service had shown an interest in continuing to increase the cost of shipping.

Business Transition– Netflix was looking to radically change their business model from mail delivery to digital delivery. It was unclear they had the Intellectual Property, or business assets to smoothly make this transition.

While these were all valid concerns at the time, Netflix has been validated. My friend sold Netflix around $10, and it’s now hovering near $45 (yes up another 500% from where he had it).”

It continually enraged me when individual investors think “investing=real estate” or “investing=picking stocks.” Even worse is when this lie prevents people from ever investing in the first place because it’s too complicated.

There is a simpler way: lifecycle funds. I cover this all in chapter 7 of my book, including picking long-term investments, automating investing, and various investments based on your appetite for risk.

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76 Comments on "A good example of why you shouldn’t try to pick stocks"

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iamamonkey
iamamonkey
6 years 9 months ago

So true. Just as you wouldn’t expect a casual programmer who programs 1 hour a week to compete with the full-time big shots in Silicon Valley, you can’t expect your average retail investor to have the time and resources to pick stocks well.

Oddly enough, however, your friend made the right decision to get out of Netflix. There was no real reason to have a position in that one stock. With the knowledge they had, it could have easily lost 500% also.

Concojones
Concojones
6 years 9 months ago
While I agree stock picking is over-rated, I do see some value in it. I buy a stock as a proxy for an index. The advantage is that you can follow it up and buy when it’s lagging the index. I admit it’s tricky* though, not for the average investor, and my results so far aren’t the greatest. I’d say it’s for those who think they can compete with the pro’s, and are happy to invest a lot of time, too. (*) Tricky because very likely, you are judging the stock by exactly the same criteria as the rest of… Read more »
craig
6 years 9 months ago

Actually I think your title should be “A good example of why I shouldn’t try to pick stocks”.

NomadicNeil
6 years 9 months ago

Has research not proven that it’s better to have monkey randomly choose stocks than the average professional advisor.

Mike P
Mike P
6 years 9 months ago

If you are in it for the long term than investing in equities can be a good component of your portfolio. People get burned by trying to game it for the short term or buying a stock on the advice of someone else and not understanding the reason. I can’t argue with your statements about Netflix but it may have been helpful to look at things like growth rates of revenue, EPS and such. Plus 500% return is nothing to laugh at, so I would have sold also just to lock in the profit.

Justin King
Justin King
6 years 9 months ago
While I fully understand the value of investing in index funds, the logic is a bit off with this and I think a lot of investors inherently know it. Looking at the S&P500, there are companies on the rise, companies on the fall, and companies staying the same. I’m talking about performance here, not stock prices. Naturally, we want to invest in the companies on the rise. I hear the random walk argument that a stock is a stock, but that is obviously false (keep reading). To me, an Econ grad, investing is about stock picking through a diverse portfolio.… Read more »
Trevor
Trevor
6 years 9 months ago
Ramit, as a personal financial advisor (Long-time reader, first time commenter), I have some serious concerns with your recommendation of Lifecycle Funds. I’m not getting into the indexing vs. picking stocks, or even actively managed funds argument here. But, Lifecycle funds, as they are currently constructed have some serious flaws. First, they are not standardized as to asset allocation. Funds with the same “Target Date” will have vastly different amounts allocated towards equities at any given time. Second, many lifecycle funds use underlying actively managed funds, defeating point of using them for indexing. Some use index funds, and some also… Read more »
Oleg Mokhov
6 years 9 months ago
Hey Ramit, 80-20 investing with lifecycle funds. I had planned out my entire personal finance system… except for one thing: investing. Investing was the one hole I wasn’t looking forward to plugging (that’s what she said). I knew about mutual funds, but even with those, I’d have to take care of them. I wanted something where I buy once and it runs on itself. I trusted the system much more than myself with this stuff. So imagine how excited I was when I was approaching the end of your book. Lifecycle funds – EXACTLY what I needed. An 80-20 solution… Read more »
Greg Retzloff
6 years 9 months ago
There’s a common misperception that “the pros” beat the market. Most don’t in the long haul. Academic reserach is solid on this. Two of the most celebrated funds of the last 30 years, Fidelity Magellan and Legg Mason Vaue Trust, have lagged Vanguard’s S&P 500 Index by 2% or so over the last ten years. Check Morningstar’s tax-adjusted return figures to verify. Lifecycle funds from Vanguard or T. Rowe Price are an excellent way for the newer investor to get started. An investor can use these as a “core” investment and then further diversify with an REIT, a good commodity-related… Read more »
Steve Place
Steve Place
6 years 9 months ago

Yep. Picking stocks is not investing. It’s speculation.

You can make money from speculation, but it has more to do with risk management and discipline rather than getting some long shot homerun and retiring on that play.

But buying a stock because you believe in the company is a terrible way to go about it. Men with Deep Pockets will make you look very, very foolish.

Also, I’m not sure if I agree with using lifecycle funds, but Trevor did a pretty good job of hashing out the arguments.

Matt
Matt
6 years 9 months ago
Indexing is the way to go. Life cycle/target retirement index funds are generally overly aggressive for what people should want and feel safe with. If people would take the time to pick up one good book about the basics of investing (not stock picking or trying to find the best place to invest) they would understand the markets and how indexing can help them more than they could imagine. A target retirement fund accompanied by one additional bond index fund to lower their percentage of equities to something they’re more comfortable with would be excellent for most people. So many… Read more »
Customers Revenge
6 years 9 months ago
I would call what you’re advocating to be “saving” not “investing”. Investing to me brings connotations that people know what they’re doing and are applying money towards something specific. Saving to me is setting money aside for later. Regular deposits into funds are just a form of savings. Example: You’re investing your time and money into your own businesses. Books, community, PBWiki, and whatever else. These are each specific and you hopefully get a hell of a lot more out of those businesses than out of a fund. When you get extra money from these “investments” that you can’t reinvest… Read more »
Trevor
Trevor
6 years 9 months ago
Ramit, Agreed that Vanguard offers a good and lowcost option. I am not familiar with Schwab’s offerings in this area. As to your point that we both know people don’t rebalance – I agree as well, and offer as an alternative what some fund companies call Lifestyle or Asset Allocation funds. They allocate to a specific asset allocation and rebalance regularly to keep it there, and there are multiple options across the risk scale. The point in using them over Lifecycle funds is that you always remain in control of how much you have in equities, bonds, cash – and… Read more »
Matt
Matt
6 years 9 months ago
Customers Revenge: The generic fund as you call it, invests in a variety of places. Target retirement funds generally have an index of the stock market, which invests some money in hundreds of different companies. GE? Own that, IBM? Own that too. The bond funds invest in a wide variety of bonds. You need to read the prospectus’ to understand where your money is going. Yet another example of someone who doesn’t research what they’re investing in. It is “investing”, you’re putting your money into companies with the intent to take a profit years down the road when you retire.… Read more »
Chris
Chris
6 years 9 months ago
Ramit, I agree with everything you say about 99% (or more) or people being bad at picking stocks. We may or may not disagree over whether that number should really be 100% – ie whether *no one* can actually be good at picking stocks. However, I do want to point out that if there *are* actually people who are good at picking stocks, then stories like this would be no indication of their skills. Results are always going to be distributed around some average. Just because it so happened that selling turned out to be the “wrong” move here doesn’t… Read more »
Snowballer
Snowballer
6 years 9 months ago
I think it’s like this. Most people’s fortunes are tied up in highly specific investments which may not be a single equity security but are just as volatile. For example, you go to graduate school for a degree. There’s a risk that in 10 years everything you learned will be obsolete. There’s also a “risk” that in 10 years what you learned will be more in demand in ever. You can look at what’s happening in that industry and the world in general, but you don’t really know. It’s analogous to buying a specific stock for X Y or Z… Read more »
matt
matt
6 years 9 months ago

meet with a local primerica representative and have them help you with your money. costs you $0 and it was the best decision i’ve ever made. I now know how to invest my money and how much I need to invest a month to retire when i’m 50. Buying individual stocks is a joke. buy mutual funds. If the stock goes down, who cares, you are buying shares on sale. I’m amazed at how complicated people try to make investing

Ben
Ben
6 years 9 months ago
Primerica?!?!?!?! Please tell me you are kidding. There 2 HUGE things wrong with that company. 1. All of the products they will be suggesting are what the financial rep makes the most commission on which is obviously never what ideally you should be investing in. 2. Their reps maybe have a college degree but most likely just a high school diploma or GED. My cousin who is a loser high school dropout got a job as a rep for them as a financial advisor. Several other people I know that didn’t have the grades to make it into business school… Read more »
matt
matt
6 years 9 months ago

@Ben
The commission is based solely on the amount invested and has nothing to do with which stocks/funds you invest in. You’re terribly misinformed. I bet you have whole life insurance rather than term too. Why would Primerica be the one company that didn’t need bailout money? I’ll be waiting for your answer

Matt
Matt
6 years 9 months ago

@Matt

What is Primerica’s comission? What percent? Do they take it yearly, or when you invest the lump of money?

matt
matt
6 years 9 months ago

it is based off of how much you invest, so each time you invest they get a small portion. I put in $10,000 and my rep got less than $50. Their salaries are all available on their website, there are no secrets.

Matt
Matt
6 years 9 months ago

That fee is very reasonable, but what kind of funds did they put you in?

benbleikamp
benbleikamp
6 years 9 months ago

What do you say when people bring up Warren Buffett? He seems to have a knack for picking out great companies and going “all in” by buying a controlling stake in them.

He actually had a great quote, though I don’t remember it exactly, but essentially he said “The difference between a professional investor and an amateur investor is a professional knows when to put all his money into one stock.”

matt
matt
6 years 9 months ago

@the other matt
they don’t charge me a penny (primerica itself) The funds I invested in are van kampen. I’m never charged by primerica to invest only by the mutual fund company which is a very minimal charge

Paul E
Paul E
6 years 9 months ago

@matt “Why would Primerica be the one company that didn’t need bailout money?”

from wikipedia: Primerica Financial Services (PFS) is a direct marketer of financial services which uses a large sales force of full-time & part-time representatives, headquartered in Duluth, Georgia. A subsidiary of Citigroup

A subsidiary of Citigroup. LOL, What was that about no bailout money

matt
matt
6 years 9 months ago

@Paul E – Primerica was not a part of the Citigroup bailout. Primerica has more than $5 billion in capital and zero debt. Check your facts again

JP
JP
6 years 9 months ago

You guys should google an article that Warren Buffett wrote called “The Super Investors of Graham and Doddsville”, then check out fwallstreet.com. Some interesting reading in there about picking your own stocks vs.investing in mutual funds.

Will Ashworth
6 years 9 months ago

Read this article. You’re probably better off buying stock in the fund companies themselves. JMHO.
http://stocks.investopedia.com/stock-analysis/2009/Winning-The-Target-Date-Fund-Battle-TROW-MFC-AB-PFG-WFC0605.aspx

Robert
6 years 9 months ago

But Jim Cramer said it was a good stock…

Jim
Jim
6 years 9 months ago

The article should read “Why it’s good to pick individual stocks!” It’s never a mistake to walk away with a 500% gain. Tell me the last life cycle fund to return that – well, probably not in their life cycle!

Mike P
Mike P
6 years 9 months ago
One thing to consider with the professional investors is that many of these guys cannot move money without it being noticed. Nobody is going to notice if you hop onto Scottrade and buy 2 shares of google, but when you are moving large amounts around you have to buy the shares in blocks. The buying pressure (or selling pressure) gets noticed thus modifying the price. I would consider this as something that can limit your returns. For the individual I would agree that Lifecycle or Index is the way to go because individual stocks require that you do alot homework… Read more »
Andy J.
6 years 9 months ago
My 1st comment, but I’ve been a consistent reader for a couple years. Great blog Ramit – it’s been helpful and inspirational to me. —– I love it. Please continue to believe that the efficient market hypothesis is true and that over the long run no one can beat the market. Ignore every value investor that has been successful thus far and continues to be successful in their career: Warren Buffet, Benjamin Graham, Seth Klarman, John Paulson, Lee Ainslie, Dan Loeb, David Einhorn, Stephen Mandel, and the list goes on. Ramit – you really are doing the right thing. 99.9%… Read more »
Financial Samurai
6 years 9 months ago

Everybody has a success and failure story. I believe you SHOULD pick stocks if you’ve done enough research. It’s basically positive percentage gambling.

I’ve made $150,000 on one stock before and I’ve lost $35,000 on one stock before. Sucks losing, but if you can win 60% of the time, you should continue to do it always.

Financial Samurai

Michael
Michael
6 years 9 months ago
Your life cycle funds ‘advice’ is very dangerous advice in general. This is another tool used by fund companies to coax you to their funds. Life cycle funds, even in the most conservative investments have lost money in the most recent stock market flop (think bonds, but getting stock results). This is a minor scandal comparatively, due to the small amount of ppl and money in these funds compared to the whole market meltdown, but I’m sure those that took them for the ride are quite livid at what they were ‘sold’. Your advice panders to the fund companies out… Read more »
Greg Retzloff
6 years 9 months ago
Using a lifecycle fund doesn’t indicate “laziness,” nor does suggesting that a young investor use one consitute “pandering.” In fact, lifecycle funds may be the best solution for a large minority of individual investors who have better things to do than obsess over the minutia of investing. They may be the best choice for others who would not to invest at all if not for the simplicity of lifecycle funds. Assuming an investor chooses either Vanguard or Price, there is one caveat in using these funds. An investor shouldn’t pick a fund because of its “target date.” Instead, the decision… Read more »
Mark Wolfinger
6 years 9 months ago

Life cycle funds may be an easy choice, but they represent a very poor choice. The data is available that shows these guys a) don’t stick to their portfolio restirctions and b) had a very poor year in 2008.

Investors can do far better than that. And deserve better. Just because you recommended these in your book does not mean you cannot supply better advice now.

I am not suggesting that they pick individual stocks. I am not suggesting anything specific, other than your recommendation was ill-advised.

Matt
Matt
6 years 9 months ago
@Mark Did poor in 2008? Please tell me what funds did do well in 2008. The market crashed, most everybody took a big hit, including warren buffet on his GE purchase. You can’t even attack target retirement funds directly, they are made up of underlying funds. I still recommend target funds that have a % in bonds close to what the investor desires rather than the date printed on the fund. @Jim No life cycle/ target retirement fund has returned 500% in a short time, but no such fund has made anyone’s money disappear either. That is unless of course… Read more »
JimE
JimE
6 years 9 months ago
Andy J, That was a great comment about institutional investment vs personal investment. My only comment on “investing” is that if you do it without goals and a realization of your own circumstances vs the average you’re an idiot. If a young couple starting out received a gift of 100-200k (someone dies, they both have college funds but got scholarships, home downpayment fund from parents) they do not have the same risk for retirement as a young couple starting out with 200k in student loan and CC debt. The first couple can basically invest in CD’s Treasuries and low risk… Read more »
Steve
Steve
6 years 9 months ago
As I’m sure most folks realize, one size does not fit all. I prefer to do in-depth stock analysis and pick my own stocks. I do rebalance, keep a mix of safe, slightly risky, and risky investments (stocks, bonds, etc.), and keep my emotions out of it. I do this because I like the control and I simply don’t believe that financial advisors are worth the money people pay them. This strategy has worked well for me over the years. Straight lifecycle funds will work for others. This post illustrates (perhaps unintentionally) one tenet of buying and selling stocks: You… Read more »
Customers Revenge
6 years 9 months ago
Matt: You said -It is “investing”, you’re putting your money into companies with the intent to take a profit years down the road when you retire. Saving is setting money aside in a savings account, money market account, cds, or in the mattress. Putting money into stocks, bonds, etfs, mutual funds, and tips is investing.- Investing to me implies more control and intelligence than putting money regularly into an instrument. To me a fund is not much different from a savings account. You maybe could invest into funds, but I guess that most people just save and keep their savings… Read more »
Nelson
6 years 9 months ago

Just to be clear on this, you’re using the example of a 500% gain to tell people to not invest in individual stocks? The underlying argument has merit, but the example is just terrible.

Bobby
6 years 9 months ago

Hey, he made his money, no harm done. Sure, he could’ve made more, but if the rabbit wouldn’t have stopped the dog wouldn’t have caught him. No crying over this.

Aaron
6 years 9 months ago

Ramit,

I read your book and I have been struggling with this chapter. Most index funds don’t have any real ROI over a long period of time. Can you give me numbers to prove otherwise? I also cannot figure out this magical national average of 8% returns. Where does this come from.I kinda like buying a stock cheap having it rise 500% and then selling it. Sure it’s more risky but so is having money in an index fund for 10 years and not really gaining a profit.

Justin King
Justin King
6 years 9 months ago

Aaron, just to jump back into the conversation here. Remembering back to Finance class, the 40 year average (which, I believe was 1964 – 2004, give or take a couple of years), was just shy 10% on the S&P 500.

I don’t know about the 8% statistic.

Snowballer
Snowballer
6 years 9 months ago
John Bogle’s “The Little Book of Common Sense Investing” does an excellent job of citing the numbers about what kind of return index funds historically have (whether the investment is held in tax free space or not makes a big difference). It’s ridiculous to even say ROI on an index fund is zero because that implies that the net economic value provided by every company in the index in question never changes. It is to say that the companies work in such a way that every single advance in technology, management, new products, cost cutting measures etc. is somehow canceled… Read more »
trackback
6 years 9 months ago

[…] 17) A good example of why you shouldn’t try to pick stocks […]

Nick
6 years 9 months ago
I have to commend Ramit on his take of the blog in question. Although my intent was more focused on showing an example of how a company defied projections and conventional wisdom, overcoming huge obstacles. I will say it shows a lot about how the predictability/or volatility in a single company can create problems in predicting long term growth. In the end my take-away from Netflix was there’s just no substitute for great management who knows their business. Though, I think I’ll leave the stock picking and suggestions to people like Ramit and focus on my core competency of Branding… Read more »
lurker
lurker
6 years 9 months ago

Netflix advice was bad. Since you can’t predict the direction of stocks, the correct move was to put in a trailing stop and let the market take you out or let your profits run as you raise your stop under the rising shares…of course, the art is knowing where to put the stop so you aren’t sold out right before the share double again…but it still would have been better advice than studying the “fundamentals” as the price trend of the shares is more important.

Kevin
Kevin
6 years 9 months ago
Wow. There’s a ton of bad advice and misinformation in these comments. I just wanted to clarify a couple of things. 1.) No amount of intelligence, education, experience and research will ever enable you to consistenly pick winning stocks. There’s no such thing as a “good” fund manager who is skilled at picking winners. There are lucky ones, and unlucky ones. That’s it. Anyone trying to convince you otherwise has an agenda. 2.) Primerica is an MLM pyramid scam. Do not let them anywhere near your money. Their representatives are not hired, they’re “recruited.” They don’t receive a paycheque, they… Read more »
Evan
Evan
6 years 9 months ago

“With the knowledge they had, it could have easily lost 500% also.”

Uh… no. It could not have, under current US corporate law. This math… it is not my kind of math.

Joel
6 years 9 months ago
So let me get this straight: “This guy made money on a stock, but he could have made a lot more if he’d stayed in. Therefore, you shouldn’t buy stock.” This example proves the contrary. The point of investing in the market clearly isn’t that you’re going to make money every time, guaranteed. The point is that you can do better, over time, if you make smart investments.I know “smart investments” is a big caveat for people who don’t have hours to devote to studying the market. But if someone does their due diligence, and they’re judicious, they could do… Read more »
Joel
6 years 9 months ago

I’m pretty new to your site, and I see you’ve written some about investor behavior/psychology. That’s a really interesting element to add to the subject here — I look forward to seeing how psychology impacts people’s decisions here. Can you recommend a particular post that addresses this?

Thanks for the response, too.

Credit Card Chaser
6 years 9 months ago

I agree, a great read on this subject is “A Random Walk Down Wall Street” by Burton Malkiel – its a classic.

http://en.wikipedia.org/wiki/Random_walk_hypothesis

xmasy
xmasy
6 years 9 months ago

Ramit,

Would u ever reveal ur net worth?

Nate
Nate
6 years 9 months ago
This anecdote is an indictment of stock-picking? No, this is an example of hindsight, which is best left out of any serious investment program. 500% is a nice profit, and without a crystal ball, this was a good move. Sure, he could have let his profits run as the old saying goes, but he could just as easily have lost money by holding too long. There are always new investment opportunities somewhere. I don’t see how buying the average of 500 or more businesses, some of which are poor, some mediocre, some good, and some great, constitutes “investing.” Any serious… Read more »
xmasy
xmasy
6 years 9 months ago

I agree with Nate.
Ramit, sometimes i do wonder if u are credible enough to say what u say?

For example, can u show us what u make etc, and where that money goes and how its invested and so on. What are your exact sources of income and so on.

We all talk greatly about Warren Buffet because his assets PROVE it. If he was dirt poor, his name would never be mentioned.

Basically what I am asking u is, can you show us how you became ‘rich’ or trying to by of revealing your own financials. Is that a fair request?

Bob Schumann
6 years 9 months ago

I agree – investment is NOT about picking stocks.
Do not believe the myth that diversification can be achieved with 10-30 individual stocks. Academic research indicates that it takes at least 60 randomly selected individual stocks to eliminate 88% of diversifiable (uncompensated) risk. I say, build a $250,000 core portfolio with low cost index funds or at least 60 individual stocks from different industries and countries.

Bob Schumann,
CFP, People’s Financial Advisor

Steve
Steve
6 years 9 months ago
I’ve got a quick question for those that are keen on purchasing funds instead of individual stocks. I’m not trying to be facetious here. I’m really looking for some insight. There are a vast number of stocks on the market. There are also a vast number of funds on the market. Many more funds than stocks I imagine since you can slice and dice a fund with any number of stocks. So the question is this: If it’s difficult to choose individual stocks, isn’t it even harder to choose a fund? I am assuming that funds are selected on the… Read more »
Bob Schumann
6 years 9 months ago

Brinson, Hood & Beebower research of 1986 proved that asset allocation is the single most important decision that an investor makes. Over 90% of portfolio performance is explained by the asset allocation decision.

With this in mind, you can see why picking index funds or mutual funds with lowest management fees is a direction you should adopt as long as they fit your overall asset allocation strategy.

Bob Schumann,
CFP, People’s Financial Advisor

Steve
Steve
6 years 9 months ago
Bob: This is still not clear. How does this affect choosing a fund? Ultimately, it is the individual investor who must select an allocation strategy and choose a fund. To me, this seems to be just as much work as selecting several individual stocks that suit your risk level. Choosing mutual funds vs. picking individual stocks would seem to be a wash to me. In both cases, the individual must be aware of the same fundamentals and make the same (difficult) choices. As for choosing a fund with 60 or more stocks, this doesn’t seem to make sense to me… Read more »
J
J
6 years 8 months ago

Just don’t go blindly following your appointed, well-intentioned guru.

Customers Revenge
6 years 8 months ago
Academic “proofs” about the best strategy START with the assumption that you can’t pick stocks! They ASSUME that everything is random, that the market is efficient and that stocks have certain measurable statistics. Of course the result that comes out is going to be how to pick a set of randomly behaving objects about which you know some statistics like volatility and correlation. There are other proofs that the first proofs are wrong (see Nassim Nicholas Taleb Fooled by Randomness). Stocks and markets are not statistically normal so all those proofs are roughly useless. There is also the common sense,… Read more »
trevor
trevor
6 years 8 months ago
You can pick stocks and its not hard to do so. Just because most people can’t does not mean that you can’t. Its actually quite easy if you have the right temperament and you know what you are doing. The reason Wall Street experts are horrible at it has nothing to do with its difficulty and everything to do with the demented ways in which Wall Street and finance work. Your post should really be titled “An example of why you shouldn’t speculate” Their are many problems with the NetFlix example given. Firstly and most importantly: price, price, Price, PRIIIIIIIIICCCCCCEEEEE.… Read more »
trevor
trevor
6 years 8 months ago
@Kevin: I think you are completely wrong. Fund managers are not just lucky/unlucky. Buffett has real skill not just luck and there is proof of it. Read the following: http://www.conscious-investor.com/articles/news/conference/iwif.pdf There is a 1 in 100 billion chance that Warren Buffet could have obtained the result he did. There are not 100 billion fund managers. Therefore its highly improbable that Warren Buffett’s performance is the result of chance. BTW, the 1 in 100 billion result is obtained from the fact that Warren has beaten the S and P 42 out of 47 years and we think of each year as… Read more »
Steve
Steve
6 years 8 months ago
I’d have to say that I agree with Ramit’s assessment. Asset allocation does matter (you don’t want to be overweighted in a single asset class or sector). As for stock picking, I’ll just say there are two choices: You can go with an index or lifecycle fund and put your earnings on autopilot. This is Ramit’s philosophy and it is a good one (particularly if you can start early). You can also go out and do the serious legwork required to find a mix of stocks that offer a better return. It is “easy” in the sense that anyone can… Read more »
Vas
6 years 8 months ago

It depends if you have the time or not and actually enjoy and have an interest in doing the research and risk analysis. If this is all to hard then a lifecycle fund is a much better option. If you plan on doing it yourself – your finger must be on the pulse constantly. If not losses will incur.

alexisella
alexisella
1 month 12 hours ago

This is a really good example to pick stocks. Thank you so much given this valuable information .

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