Once A Stock Picker, Always A Stock Picker?
There is an inherent belief in some people, maybe they are special, that they can beat the market. These people think they can pick stocks and do better than the traditional indexes. Maybe these people are oblivious or just ambitious. I am one of these people. Of course, I want to own some index fund in my retirement accounts, but I will always pick stocks.
Returns of model portfolios constructed according to investment newsletters’ advice show that fewer than one in seven newsletters was able to beat the Standard & Poor’s 500-stock index over the long term.
These results reflect the real-time monitoring of the newsletters’ recommendations, not back testing. This is important because, after the fact, it is all too easy to discover investment strategies that would have beaten the market. After all, most strategies based on hindsight assume that investors knew something that they didn’t or couldn’t know in time to exploit such strategies. This problem, sometimes called hindsight bias, is troublesome for research conducted by Wall Street and academics alike.
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