Last week, I discussed the perils of market timing. This week, I’ll address its close cousin: stock-picking. These days, many people accept that stock-picking isn’t a great idea. Evidence shows that both professional and individual investors fare poorly, on average, when they choose individual [...]
Awaiting the all-clear signal
Earlier this week, someone asked me about a popular and frequently-cited market statistic. It goes like this: The U.S. stock market has historically delivered a return of 10%, on average, per year. However, if an investor had missed just the five best days over the past 30 years, that return would [...]
Dogma
In 1954, Harry Markowitz was a graduate student in economics at the University of Chicago and had just finished defending his thesis. Most of the committee accepted his work. But Milton Friedman, an economist with a national reputation, and easily the most influential member of the economics [...]
Jane’s story
I'd like to start with a seemingly simple question: Suppose you'd purchased an investment for $19,000 and later sold it for $287,000. Would there be a gain or a loss? If you answered that there would be a gain, I would agree with you. Specifically, it appears the gain would be $268,000. But what if [...]
The expertise of experts
Does it make sense to heed the advice of experts? This doesn’t seem like a hard question. Intuitively, it seems, the answer should be yes. I certainly listen to my doctor and to many others with specialized expertise. And as a society, we all rely on experts—from civil engineers to airline pilots to [...]
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