Step 3 - Stock Pickers



Accept that stock pickers do not beat the market

The primary factor determining the success of a stock picker is luck. In numerous studies, only about 5% of stock pickers beat their appropriate benchmark. Most stock pickers invest in stocks that have done well recently; however, those same stocks do poorly in subsequent periods. Stock price changes are random, closely following the news reported on their progress. It isn’t possible to consistently pick stocks that will be top performers in the future.

 

Stock prices are moved by news which is random and unpredictable. As a result, the movements of stock prices are random and unpredictable. This simple logic makes it virtually impossible for a stock-picking fund manager or individual stock-picking investor to consistently predict which stocks will be big future winners. The 15 pie charts below comprehensively reveal the overwhelming outperformance of indexes over active managers.
The many studies illustrate that across many asset classes, the corresponding index outperforms the vast majority of its actively managed counterparts. Whether you look at market-timing stock and fund pickers or actively managed funds benchmarked to the S&P 500 Index, IFA’s Large-Cap Value Index, IFA’s Small-Cap Value Index, IFA’s International Value Index, IFA’s Emerging Markets Blended Index, or Vanguard’s Intermediate and Long-Term Bond Funds, the Indexes overwhelming dominate and defeat the actively managed funds. No matter how you slice it, passively managed indexes beat actively managed funds.

 

 

 

Additional Charts and Graph from Step 3


Step 3
 Top 20 Worst Performing Dead Mutual Funds
T3-1
Top 20 Worst Performing Dead Mutual Funds		 The Largest Bankrupticies
T3-2
The Largest Bankrupticies		 Survivors and Winners of S&P Stocks
F3-1
Survivors and Winners of S&P Stocks
F3-1a
Equity Returns for Major Companies vs 5 IFA Index Portfolios and S&P 500
F3-1b
Risk Reward Optimization - 20 Years
 
F3-1c
Excellent vs Unexcellent Company
F3-1d
Excellent vs Unexcellent Company Portfolio Returns 		71 Manager
F3-2
71 Manager		 The Odds of Success
F3-3
The Odds of Success		 The Odds of Success Revisted
F3-4
The Odds of Success Revisted
  Gross and Net Annual Returns Earned by Passive Index Funds, Average Individual Investors, and Average Investment Club
F3-5
Gross and Net Annual Returns Earned by Passive Index Funds, Average Individual Investors, and Average Investment Club		 1,446 Large Cap blend Mutual Funds vs the S&P 500 Index
F3-6
1,446 Large Cap blend Mutual Funds vs the S&P 500 Index
 Passive Beats Active: 16 Comparisons of Active Managers vs Indexes
F3-6A
Passive Beats Active: 16 Comparisons of Active Managers vs Indexes 		Passive Beats Active: 16 Comparisons of Active Managers vs Indexes
F3-6B
Stock Picking Skill: Statistically Indistinguishable from Zero 		Coins and Stocks
F3-7
Coins and Stocks
  Short-Term Experience in Dice Rolls
F3-8
Short-Term Experience in Dice Rolls		 Long-Term Experience in Dice Rolls
F3-9
Long-Term Experience in Dice Rolls		 Distribution of Annual Occurence of the Stock within the S&P500
F3-10
Distribution of Annual Occurence of the Stock within the S&P500		 Distribution of S&P500 Stocks-2001
F3-11
Distribution of S&P500 Stocks-2001		 Distribution of S&P500 Stocks-2000
F3-12
Distribution of S&P500 Stocks-2000
  Distribution of S&P500 Stocks-1999
F3-13
Distribution of S&P500 Stocks-1999		 Distribution of Stocks in S&P 500 Annual Return
F3-14
Distribution of Stocks in S&P 500 Annual Return		 Blue Chip Outcomes & Time Periods
T3-3
Blue Chip Outcomes & Time Periods		 Technology Stock Pickers
T3-4
Technology Stock Pickers		  
 
The Big Casino
Stock Picker's Graveyard

Incubator Bias
 
Stock in a Box
Needle in the Haystack


A Devastating Conclusion

 

< Step 2 - Nobel Laureates Step 4: Time Pickers >

 

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