29 May 2014

In Defense of Stock Picking

Stock Pickers are as good as a monkey with a dartboard. This often repeated cliche may at first seem plausible when one looks at the performance achieved by the average portfolio manager. But what would happen if all investors decide to invest in index funds? Who would cause shifts in relative valuation in the universe of investable shares? The answer is that there will always be investors who - rightly or wrongly - will try to pick the right shares. The rewards are huge in this real-world poker game. And like in the card game the winners take (absolute or relative) performance gains from the losers. And like in Poker anyone who is cognizant of his lack of relative skill is well advised to stay away from the game, unless he enjoys the thrill of the chase.