Why You Shouldn't Rely on People's Stock Picks
Everyone is always trying to give you stock advice. I hear all
the time about great new stocks that I should just put a little
money in - my friends tell me that they have the inside track,
and that all I have to do is put a little in and I'll get great
returns.
That's just not a good idea, however. Most of them that I have
tried haven't panned out - sometimes they do, but usually it's
the problem with trying to invest in individual stocks anyway:
you're not the only one with a hot tip. Information is rapidly
priced into the markets these days - everyone who trades for a
living likely already knows about whatever you know. And if you
don't trade for a living, you just aren't as on top of things.
The vast majority of shares are owned by big financial
institutions, who pay legions of people to keep track of every
detail and to be on top of every news report. Even those
professional stock pickers usually can't do better than the Dow
or Standard and Poor's index - it's just very difficult to do,
largely because individual stocks don't have the kind of
diversification benefits that a stock index fund does. This
makes it extremely hard to "beat the market" - and your friend's
stock pick just isn't likely to help you do that. They may be
right on about what is going to happen, but everyone else is
already trying to make the same prediction. There's a reason
very few people get rich playing the markets.