Forget stock picking, stick with the indexes

From Mark Hulbert at MarketWatch.com:

 Is it a stock market, or a market of stocks?

The market has been unusually selective of late, with an abnormally large percentage of stocks hitting new 52-week lows even as the S&P 500 was itself recording new highs.

At first glance, that would suggest that stock picking is more important than ever. Not so, according to several academic researchers.

The typical stock always tends to move in lock step with the overall market, they say. That reality is just being masked by the bull market’s strength.

If they are right, it means you are kidding yourself if you think there are greater-than-normal odds of beating the market when picking individual stocks.  

Buying and holding a broad-market index fund remains the best course of action for most investors....

Stocks — at any time and with no warning — could once again begin moving in lock step with the overall market.

As a result, stock selection has no greater odds of success now than at any other time.

And those odds are depressingly low, according to Terrance Odean, a finance professor at the University of California, Berkeley.

Research he and others have conducted, he says, suggests that “less than 1% of individuals who trade frequently can consistently outperform the market through skill."

"Over the long run, the rest would be better off investing in low-cost index funds benchmarked to the broad market.”
----
Link: http://www.marketwatch.com/story/forget-stock-picking-stick-with-the-indexes-2013-09-27