Does Stock Picking Work?

It is extraordinarily difficult to beat an overall market index fund by selecting individual stocks.

Hendrik Bessembinder (Arizona State) published a study in March 2023 that looked at stock market returns from January 1990 to December 2020. Here were the key findings:

• The majority of individual stocks did not outperform a one month U.S. Treasury bond during the years from January 1990 and December 2020. In other words, many investors took on the risk of the stock market and achieved returns less than those achieved from what is generally considered to be a risk-free investment.
• The top-performing 2.4% of firms accounted for the net gain of the entire global stock market during the January 1990 to December 2020 period.

While it is certainly not impossible to beat the overall market by selecting individual stocks, the data suggests it is an extremely low probability. While it is tempting to believe you (or a financial advisor) can pick the big winners, the notion is simply contradicted by the research and data available.

The data is from the common stocks listed in the CRSP Database. A link to the full study is here.

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