Claim 12 of 22
Stock picking: you can pick winning stocks
Can an ordinary investor pick the shares that win?
Verdict
Not established
The stock-level studies show that a few firms account for all the net wealth, so a small random portfolio is likely to miss them, and the SPIVA scorecards show most professional managers lagging their index. The methods that Lynch, O'Neil, Cramer and the others teach are outside what these sources test, so the claim as the books state it remains untested.
The cost, from the book's own figures. Holding 10 US shares chosen at random, the starting point that any method of choosing has to improve on, gives a 35 per cent chance of owning even one of the 1,092 firms behind all the net wealth created from 1926 to 2016, all of which a broad index holds.
Made by: Lynch, O'Neil, Cramer, Kratter, Cassel, Fisher. Argued against by: Bogle, Malkiel, Graham, Booth.
Test it on your own numbers
- United States: Investor.gov, Asset allocation and diversification (investor.gov/introduction-investing/getting-started/asset-allocation), to compare how many holdings a portfolio spreads its money across.
- United Kingdom: MoneyHelper, Thinking about investing? Make sure you understand the risks (moneyhelper.org.uk/en/savings/investing/thinking-about-investing-make-sure-you-understand-the-risks), to weigh single shares against spreading money across many.
- Australia: Moneysmart, Investment diversification (moneysmart.gov.au/how-to-invest/diversification), to check how much of a portfolio rests on one company.
The full test, with every figure dated and sourced, is in chapter 12 of the book.