Stock Picking - Is the belief that an investors can find a stock that the market has undervalued compared to its fair market value.

To understand why stock picking is impossible, investors must first understand what this implies. As you have most likely read on previous pages, our beliefs are rooted in the fact that markets are efficient.

If it were possible to pick stocks that are undervalued, it would imply that the market makes is mistake-prone, and therefore not efficient. Taken further, undervalued stocks imply every market analyst, stockbroker, and institutional investor was wrong in his/her evaluation of the stock.

Do you believe that you have more knowledge about a stock than the people charged  with analyzing information eight hours a day, five days a week?. Today's stock price reflects all the available information form today. We can not predict what tomorrows price will be because tomorrow's price is determined by tomorrow's events.

The facts are simple: it's tough to know more than every other investor.  A look at the research that has been conducted on the topic shows 85% of active managers fail to beat their benchmarks, and the 15% that do are always changing. The managers at the top this year are often at the bottom the next year.

If you think that you have found the manager that is going to do what no one else has been able to do, consider this quote from John Bogle, "After nearly fifty years in the business, I do not know of anybody who has done it successfully and consistently. I do not even know anybody who knows anybody who has done it successfully and consistently."

If the founder of one of the worlds largest mutual fund companies can't find someone to pick stocks, how are you and I going to be able to.

 

Don't Gamble Away Your Investments

If  you want to go to gamble with your

money go to Vegas, don't risk your

retirement.

 

Did you know? The odds for black jack

are 49/51. This makes it one of the fairest

games around. Its almost as fair as a coin toss.

That's similar to the 50/50 chance you have of

beating the market.  Why is it that most of us

walk out of the casino with less money than we

started with, just as most of us retire with

less than we would have if we went with a

buy and hold strategy.  It's because our

emotions are to blame in us making irrational

decisions.