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If you don’t believe me, read Barron’s

July 17, 2018

I suggest that the “average” investor buy index or exchange traded funds rather than individual stocks. On June 6th I posted a blog providing my reasoning for this. Here is a link:

This week’s Barron’s July 16, 2018 issue has a cover story with 34 stocks their experts chose of what to buy now. That piqued my interest about how their previous picks did. Well, the nine “experts” picked 49 stocks in January and the price changes from Jan 5 through Jun 29 were shown. 25 stocks declined and 24 went up. The average gain for the 49 stocks was 1.5% with the gains averaged 16.3% and the losses 12.7%. The average gain of 1.5% is lower than the gains in an S&P 500 fund. The article also provided the total return which was higher since that included dividends. However, that is taking me away from the point of this column.

The nine stock pickers are recognized pros and, better still, they are among the best of the better known investment pros; and I want to use their choices to illustrate why the average investor should stay away from picking individual stocks.

This group presented their “best” picks for this article and they were wrong with half of them. Of the nine, four had losses in all of their picks. Two had no losses in any of their picks. The highest loss was 52% and highest gain was 52.3%. Six of the 24 gains were over 20% while four of the losses were over 20%. The two that had no losses did very well averaging 21.8% and 10.7% for each stock they chose. The other seven pros had varying and erratic results.

If the experts cannot do it, then how can nonprofessionals have any hope they could choose stocks that will outperform the market. I think sticking with funds that track the major averages works best for most investors.

BTW, this is a contest or news event and it is possible that these picks were for stocks expected to jump up in a short period. If that was the case, then trying to emulate this portfolio would make no sense since you will not be told when to sell. This article seems to substantiate what I have been suggesting for years: picking individual stocks doesn’t work.

Barron’s has a full analysis on-line for their subscribers in case you want to look further than the cover story.

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