Posts filed under “Investing”

Apprenticed Investor: There Are No Shortcuts

Tscm_1The latest "Apprenticed Investor" column is up:  There Are No Shortcuts.

Sorry to be the one to deliver the sad news, but despite some claims to the contrary, there is no magic bullet.  Investing takes some smarts, lots of hard work and a little bit of luck.

Here’s an excerpt: 

"To be fair, some investing books are worth exploring and considering on their own merits. Take, for example, The Little Book That Beats the Market, which has gotten some favorable press of late.

I have no problem with the book’s main plan: "Invest in good companies when they are cheap." That’s certainly one way to pick stocks, and it sure has worked for Warren Buffett. Of course, you also can use a technical method of stock selection. Or you can screen with quantitative data. Or you can rely on fundamentals to make your stock

It really doesn’t matter how stocks enter your portfolio. As we have shown time and again, stock selection is not where investors run into trouble. Managing the positions after they become part of the portfolio is where people typically discover their investing shortcomings. And that’s before we get to a wealth of other important issues, including how and when to make purchases, how much of a given stock to buy (position-sizing), when to add to existing holdings, how to handle bad markets, when to use leverage, how to use options, how to hedge, when to use stop-losses, etc.

Regular readers no know I think stock selection is way over enmphasized. So much so, that in the column, I lay down this challenge to both readers and the author of the book The Little Book That Beats the Market:

"You pick your best stocks, the
ones you have done all the research on and know inside and out. Then
give me a portfolio of randomly selected names. I bet that over the course of a year, I can outperform most people’s
favorites by 20% by using only techniques discussed in the Apprenticed
Investor series, such as stop-losses, money management,
position-sizing, etc.

The point of this exercise is to demonstrate that stock selection is
far less important to performance than a host of other factors. The
overemphasis on stock-picking permeates the financial media. It’s easy
to see why. It has a good story line, an inherent dramatic conflict. It
lends itself to the horse-race-type coverage that’s so easily done.
Plus, it’s easy for readers to comprehend: Buy this, don’t buy that.
You can understand why the media and investors overemphasize it."

I’m curious if any one wants to take me up on this . . .

Apprenticed Investor: There Are No Shortcuts, 11/16/2005 7:30 AM EST


Category: Apprenticed Investor, Investing, Psychology

The Myth of the Hedge Fund

Category: Investing

Do Markets Care About Politics?

Category: Investing, Politics

Erasing October’s Fright

Category: Investing

Chart of the Week: S&P500 3 year chart

Category: Investing

New Column up at Real Money (11/2/05): Restrained Rally Slowly Emerging

Category: Investing, Trading

Bottoming Process Continues

Category: Economy, Investing, Technical Analysis, Trading

Chart of the Week: Nasdaq 52 Week High Lows

Category: Investing

Apprenticed Investor: Protect Your Backside

Category: Investing, Trading

Chart of the Week: Market Value of Equities as a % of GDP

Category: Investing