We’ve said it before, and we’ll say it again: Individual investors become their own worst enemies when they choose to play in financial markets instead of investing in them.

But here’s an interesting wrinkle. In one of his recent posts, Wall Street Journal columnist Jason Zweig shared a seemingly contradictory stat on that, in which do-it-yourself investors came out ahead of their advisor-assisted counterparts.

What’s up with that? Are we wrong??

Let’s take a closer look at the case. Zweig’s illustration compares investor experience in two virtually identical Fidelity biotech funds – except one is designed for direct investment and the other caters to investors being served by financial advisors.

You’d expect those who invested directly would engage in ill-advised market-timing and more severely underperform what the fund actually returned, compared to those who were advised to patiently buy and hold. Instead, investors in the advisor-tailored fund did worse in Zweig’s illustration. How come?

The illustration Zweig used may well have been a case of some market-timing investors getting lucky during a specific timeframe. But another culprit to consider may be the “advisors” recommending the advisor-tilted fund.

Zweig describes: “Not all advisers chase performance, but all too many still do. Buying what’s hot and dumping what’s not, they are no less human than their clients.”

In describing what a good advisor should be doing for you, Zweig quotes Dimensional Fund Advisors’ co-CEO Dave Butler: “Advisers [should] provide a human element that gives clients confidence and comfort in not deviating from a plan.”

Zweig elaborates:

“[Y]ou should hire an adviser not for his or her investing prowess, but to help organize your finances, prioritize your goals, minimize your taxes, and navigate the shoals of retirement and estate planning. Done right, those services can make you far richer — and happier — than the pipe dream of investment outperformance is likely to.”

In short, we believe a good advisor should help you avoid, not enable, your “worst enemy” tendencies. Plus, they should be even more disciplined than you are at ignoring any market-timing habits and stock-picking cravings to which they themselves may be vulnerable.

The defense rests.

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.

While we don’t think of ourselves as the passive types, it’s interesting to see The Wall Street Journal shine its bright spotlight on passive investing and related evidence-based investing in its new series, “The Passivists.”

You can browse the entire series, or here are a couple of our favorite installments:

The Dying Business of Picking Stocks,  Anne Tergesen and Jason Zweig

News flash! “Investors are giving up on stock picking.” Our take on the matter: It’s about time.

Making Billions With One Belief: The Markets Can’t Be Beat, Jason Zweig

Featuring Dimensional Fund Advisors, with founder, chairman and co-CEO David Booth reflecting that “A little bit of judgment can make a difference.”

As the media turns its attention to the types of investment strategies we’ve been employing at Hill Investment Group since our founding, we wonder whether this will be a passing fad, a lasting improvement for investors or (as is so often the case in life), a little of both. Whatever. We’ll enjoy the wider coverage while it lasts, and still be encouraging you to Take the Long View with your investments, long after the spotlight has moved on.