Are you a good stock picker? Are you better than average? Or are you like most people who think they are better drivers than everyone else?
The truth is picking individual stocks is hard. Sure, anyone can get lucky, but the following statistics are sobering. According to a study by Longboard Asset Management called “The Capitalism Distribution” (as quoted in Mebane Faber’s new book, Global Value), they analyzed the stock returns from the top 3000 stocks from 1983-2007 and found that:
- 39% of stocks were unprofitable investments
- 19% of stocks lost at least 75% of their value
- 64% of stocks underperformed the index
- 25% of stocks were responsible for all of the market’s gains.
So simply picking a stock randomly means you have a 1 in 4 chance of getting it right, but a 40% chance of losing money, and an almost 1 in 5 chance of losing 75% or more of your principal.
Still feeling lucky?
And on top of that, you are up against professionals and other talented investors.
So, unless you are one of the lucky few or a pro, what do you do? I’ll save that for the next blog….