By JAMES CHEN
Updated May 21, 2019
A stock pick is when an analyst or investor uses a systematic form of analysis to conclude that a particular stock will make a good investment and, therefore, should be added to his or her portfolio. This is also known as active management. The position can be either long or short and will depend on the analyst or investor's outlook for the particular stock's price.
By R. JEFF GREEN
March 1, 2020
Unless you have a crystal ball, it is impossible to know if a stock will do well in the future. The 2020 crash is a prime example of the inability to predict the future.
How can one forecast what will happen down the road? Who would have thought there would be a worldwide pandemic and an oil war at the same time? OK, this may be a once in a lifetime event, so we will let the stock pickers pass this one time.
But let's take a closer look at what is happening with stock picking. A group of investment academics get together and collect data on various companies, look at the trend, and the overall climate in the market and then take a position. Since you can not predict the future, their position is a guess or an educated guess. Even if it is an educated guess, it is speculation. Most well-known stock-picking gurus are either adding or selling just about everything in their portfolio. Why would that be? Maybe their educated guess was not right the first time.
Problem 1 Excessive trading fees eat away at your overall return.
Problem 2 In most cases, when you evaluate portfolios, there may only be a hand full of stocks in one or two asset classes; thus, the lack of diversification makes the ...................portfolio volatile.
Problem 3 Returns are often marginal.
Bottom Line: Don't do it, because stock picking is speculating and gambling. Do you want to pay someone a fee to speculate with your retirement? The answer is no, so Eliminate Stock Picking.