My Sunday Washington Post Business Section column is out.
This week, we look at the annual silliness that is the “Year ahead stock picking.” In print the full headline Top stock picks? Feel free to try my time machine while online we went with No, don’t buy those ‘best stocks to own in 2017’.
Here’s an excerpt from the column:
Methodology: There doesn’t seem to be much of one; at least not one that is coherent or rigorous. There certainly isn’t anything close to academic research supporting the approaches taken. The articles suggested the top 10 lists are assembled by a panel of experts or chosen by the editors and staff. Surveying people who are in your general proximity and may or may not have any stock-picking skill seems to be a pretty random way to make a decision about where to put your money. The results reflect that.
Losers: One of the keys to stock picking is recognizing that over periods of time, two of three stocks will underperform their benchmark.
That is according to a study by Eric Crittenden and Cole Wilcox, formerly of Blackstar Funds. They reviewed their database, looking at every company in the Russell 3000 from 1983 to 2006. They found that 64 percent of its component stocks underperformed the broad Russell 3000 index over that period. It should come as no surprise that a list that is somewhat random in its assembly will similarly underperform a broad index.
Its not merely underperformance — over those 23 years, 4 in 10 stocks (39 percent) were unprofitable.”
We also look at the relative rarity of winners and why these top 10 lists are over-concentrated and under-diversified.
No, don’t buy those ‘best stocks to own in 2017’
Washington Post, December 11 2016