There’s never a lack of news in the financial press:  new studies, new reporting, new crises, new opportunities … it never ends.

Some of it is worth heeding; most of it is just noise. One of our roles at Hill Investment Group is to help you find the hidden gems in all that “new news.” Here are two worthy reminders that trying to pick individual stocks or forecast the market’s many moods remains as ill-advised as ever.

On the Dangers of Stock-Picking …

In his recently published piece, “Hot Stocks Can Make You Rich. But They Probably Won’t,” Jeff Sommer of The New York Times reflects on how investors may be tempted to chase surging stocks in hot markets. “But,” he cautions (emphasis ours), “before you jump headlong into stock picking, you may want to consider the odds … [O]ver the long run, while the total stock market has prospered, most individual stocks have not.”

This may seem counterintuitive, but for supporting evidence, Sommer cites a new study by Hendrik Bessembinder of Arizona State University’s business school (my own alma mater). Sommer points out two remarkable findings from the study, often overlooked in all the excitement:

• “58 percent of individual stocks since 1926 have failed to outperform one-month Treasury bills over their lifetimes.”
• “[A] mere 4 percent of the stocks in the entire market … accounted for all of the net market returns from 1926 through 2015.”

Professor Bessembinder’s study concludes that individual stock picks are like lottery tickets. A stock picker may beat the odds and win big, but if you’d rather focus on winning sustainably while managing the risks, you’re better off accepting wider market returns.

On the Dangers of Market-Timing …

On the same day Sommer’s article appeared, The Wall Street Journal’s Jason Zweig published a nicely paired piece, “Sorry, Stock Pickers: History Shows You Underperform in Bad Markets, Too.”

You may need a subscription to read the entire article, but the title says a lot. Based on data points going back to the 1960s, Zweig notes: “The odds of finding a stock picker who can do better in down markets have long been less than 50/50.” Not only are the odds against those who try to beat the market, the costs tend to be high in every market, up or down. So, while stock pickers often tout their ability to shine the brightest when the markets are at their darkest, the evidence again suggests otherwise.

So, What’s New?

Bottom line, a traditional active investor faces hurdles that are simply too tall to be enticing, especially when there is a more logical, evidence-based strategy to lead the way. This may not be breaking news to anyone who’s been following our work for a while, but I’d say it’s still as fresh and relevant as ever.

Earlier in the month, I attended “AQR University,” held at the University of Chicago and sponsored by fund manager AQR Capital. Given how many Nobel laureates have come out of there (check out that line-up of them on the wall), we know some of the university’s intellectual capital has rubbed off on us. At least it feels that way, based on the fresh perspectives we heard at the event.

University of Chicago professor and author Nicholas Epley was a keynote speaker. I’d read his groundbreaking book, “Mindwise,” but I’d not had the chance to meet him in person.

In his presentation, Dr. Epley shared some of his research into how often we try to read one another’s minds. By frequently relying on body language or “perspective-taking,” he explained how and why our understanding of others is often off-base. What’s a better way to figure out what someone else is thinking? Dr. Epley suggests we should just ask.

We also heard from AQR co-founders Cliff Asness and Dave Kabiller. In today’s fast-paced environment in practical and academic financial economics, it’s important for us to regularly “just ask” colleagues and thought leaders what’s on their minds. This is another way we ensure our evidence-based investment strategies remain guided by peer-reviewed best practices.

For more on Cliff’s views, read this Wall Street Journal article about factor investing. In it, he expressed similar sentiments to the ones he shared with us in person.

Want to know what else we learned in Chicago? Just ask!

In “Presentation With a View,” you may have spotted this enigmatic image in the photo. What is it?

You may recognize it as a stylized rendition of an “Illustration of the Month” we shared last February. Both warn us against trying to successfully pick “winners” or avoid “losers” by chasing recent performance. Based on the data from the more detailed version, you’ve got less than 50/50 odds of picking a stock fund that is even expected to survive the 15-year period ending 2015. Picking one that not only survived but also outperformed its standard benchmark dwindles to a mere 17 percent.

Why play a game so heavily stacked against you when evidence-based investing is available instead?