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If the market is efficient, why is (infrequent) stock picking so much worse than buying an index fund?
by ummonk 6y ago
If the market is efficient, why is (infrequent) stock picking so much worse than buying an index fund?
- satyrnein 6y agoThe market being efficient means individual stock you picked is priced currently, but you're foregoing the benefit of diversification.
- reducesuffering 6y agoPsychological reasons. Retail traders performance chase, selling things when they have temporary (multi-year) losses and buy when they have temporary high gains. It's incredible how strong it is even for people who are somewhat knowledgeable about finance like Bogleheads. It's also been studied by Jack Bogle himself. There was a famous study comparing Value vs. Growth stocks he noted where retail traders who invested based off either ended up doing worse than just holding both because in aggregate they kept buying the one that recently did well and then selling it when it had done poor. Buy high, sell low.
- imtringued 6y agoThe highest gains are also only available for a few days in the year. If there are three really good days for a stock then you're going to hit all of them if you hold it for the entire year. If you buy and sell shortly after you might miss all of them.