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Almost 50 years of statistical and academic research says that stock picking doesn't work, but you can read all kinds of boasting about winning trades on the internet. The thing to understand is that losers don't post.How do you pick stocks to invest in?
How much work do you do before investing and while investing?
How are your returns using your methods?
Thanks
What kind of returns relative to the SP500?
What is excellent in your opinion?
For a general investing framework, I use the chart below to guide me to specific companies to add or subtract from portfolio. I tend to evaluate what is in the bin already, like VZ, and decide if I am overweight/underweight in the sector. Then I consider the economic cycle. This is a work-in-progress, in that stock gifts, inherited, and some purchased are being combined into a family portfolio that we will pass on eventually. I don't short anything, but do cut the losers in a year or two. GE and HCP are good examples of how little I know.How do you pick stocks to invest in?
I would call it an advanced hobby. I enjoy reading about finance and business, and consider myself a decent amateur. I don't attend to these things each day, just approach it, look, and try to learn about what I avoided most of my life.How much work do you do before investing and while investing?
The second chart below shows performance in one-half of the brokerages total. The other half was recently inherited, it is up, but there is no performance to report that would be meaningful.How are your returns using your methods?
Right. And Will Rogers gave us the recipe for stock picking: "If it don't go up, don't buy it."There are tons of people who successfully picked stocks, they just did it through their employer via stock options.
But really anyone else could have done it. Pretty much anyone buying Amazon and holding it has trounced the market return over the past 15 years.
I guess the secret isn't so much how to pick stocks, but rather how to pick the one good stock that you can just run with.
Lots of Wisdom in your post. Most are thinking short, but I believe you need to evaluate each year, and go forward. Might have to cut a few companies who are "lost".While you are not JPM, you can also take advantage of severe downturns that take just about every stock down, regardless of how they will do in the long run. The strong will take advantage of the downturn. You can find high quality at a discount, but need to be prepared to buy when the news flow is extremely negative (and others are selling).
Well, I'll plead innocent on that one.... Unlike OldShooter, I think it is possible for the individual investor to outperform the market ...
Well, this sort of begs the question: "Why would we expect an individual to do better than professional fund managers and their legions of PhD quants.?"... but agree when it comes to actively managed mutual funds (in that it is extremely difficult for them to do so for a prolonged period of time). ...
The point of my brief answers is there are no short cuts that you’ll find on this thread. Many on this forum are great at saving and investing in low cost mutual funds and setting up asset allocations based on their goals and needs. They are great at planning and budgeting, and most importantly, living below their means. People here can help you with these things.
Well, I'll plead innocent on that one.
What I have said and what I believe is that all stock picking is a loser's game and the average result is inevitably less than the overall market performance. There are always funds and always individuals who outperform, just as there are always people who take more away from the casino than they brought.
OK, I listened to it. Again, I am not suggesting the use of actively managed mutual funds, which to me are to be avoided for the reasons discussed in the video. In addition, because they need to chase money, they are frequently obsessed with short term results (which by the way is an advantage I have in my picks, i.e. to find companies being sold off because of mutual fund quarterly or year end reporting).All the data I am aware of, beginning 50 years ago (see post #14, above) supports this conclusion. I am as greedy as the next guy, so if there is statistical data out there that indicates a better strategy I'll be happy to change my opinion and jump on it. Here is a 6-minute discussion of the subject: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx
So is outperformance due to skill or just luck? Listen carefully to Dr. French.
You mention some of the reasons. My individual purchases or sales don't move the market or the security in any significant fashion. I have no salary to pay, or advertising to do. More importantly, I don't need to worry about quarterly results and whether I will get a bonus as a result of outperforming that quarter.Well, this sort of begs the question: "Why would we expect an individual to do better than professional fund managers and their legions of PhD quants.?"
I could argue either side of this. One one hand, individuals have a huge advantage due to their nimbleness. They can move in an out of their tiny positions without having any significant effect on the market. Any meaningful change in a position held by fund, OTOH, is almost certain to move the market in an unfavorable way due both to front-running and simply to microeconomics. Indivuals can also take meaningful positions (for them) in companies too small for funds to buy.
Individuals also have a cost advantage -- no salaries to pay, no offices to rent.
On the other hand, professionals have access to information with depth and speed that individuals simply cannot match. Both camps talk about seeking market inefficiencies, but in an inefficient market (Econ 101) he who has the most information wins.
But can there be significant market inefficiencies? With about 3600 stocks in the US market being chased by about 10,000 mutual funds, you have to believe that every stock is under several microscopes -- this is the recipe for an efficient market where future moves will be determined by future, currently unknown, events. So ... randomly.
Finally, there is the problem of what Nassim Taleb calls "silent evidence.*" Individual traders like @copyright1997reloaded post their wins and we can be happy for them. But the losers by and large do not post ---the silent evidence.
So bottom line, I am happy and not surprised that @copyright1997reloaded has been winning lately, but will point out that there is no way to determine whether this is due to skill or to luck. It's simply an anecdote and the plural of "anecdote" is not "data."*More than two thousand years ago, the Roman orator, belletrist, thinker, Stoic, manipulator-politician, and (usually) virtuous gentleman, Marcus Tullius Cicero, presented the following story. One Diagoras, a nonbeliever in the gods, was shown painted tablets bearing the portraits of some worshippers who prayed, then survived a subsequent shipwreck. The implication was that praying protects you from drowning. Diagoras asked, “Where were the pictures of those who prayed, then drowned?”
The drowned worshippers, being dead, would have a lot of trouble advertising their experiences from the bottom of the sea. This can fool the casual observer into believing in miracles.
Yes. That's also an advantage you have. Another one is that you don't have investors buying and selling all the time, which sometimes creates a "winner's curse" where a successful manager is buried in funds he can't invest as effectively as he could with a smaller portfolio last year. That's one theory to explain the abysmal manager persistence that S&P repeatedly reports.... More importantly, I don't need to worry about quarterly results and whether I will get a bonus as a result of outperforming that quarter. ...
Maybe. My guess is that the missing 500 may be too small for a fund to invest in. Another: If I am a fund manager why would I be telling anyone what I am looking at? I think the "analyst coverage" number has more to do with brokerage house analysts but I have no facts to support this theory.... You've mentioned the 10K mutual funds and 3600 stocks before, and I've seen it discussed in other places as to why it makes stock picking impossible. But according to Zack's, a Multex study showed that of 8911 companies traded in the USA, there was Analyst coverage of only 3100 of these. Yes, I know Analyst coverage and Mutual Fund holding isn't the same thing - but I believe the same phenomenon occurs with actively managed funds as Analysts - trend following and a tendency to bunch into the same crowded investments. ...
Actually my bookmark is to "New Posts." Had you not told me, I would have needed to check to see where this thread lived.... But here we are on the stocking picking portion of the site, where us lucky or stupid or whatever individuals hang out and where for some strange reason you also like to hang out. (Not being nasty here, just trying to get you to smile.) ...