12. Why You Shouldn’t Buy Individual Stocks Flashcards
(18 cards)
What was Darren’s initial investment in GME?
Over $30,000
This investment was made after the stock began to rise significantly.
How much did GME’s price increase by the time Darren bought it?
$111 a share
He bought GME after it had already risen from $65.
What was the emotional state of Darren as GME’s price fell?
Increasing levels of worry
How much did Darren lose when he sold GME?
$12,000
This loss occurred within a two-hour window.
What percentage of Darren’s net worth did his loss represent?
A small percentage
What is the financial argument against stock picking?
Most people can’t beat a broad index of companies
What percentage of funds typically do not beat their benchmark over a five-year period?
75%
According to Hendrik Bessembinder, what percentage of stocks create all the excess return above U.S. Treasury bills?
4%
What did Geoffrey West’s analysis reveal about companies trading on U.S. markets?
78% died by 2009
What is the existential argument against stock picking?
Difficulty in determining skill level in stock picking
How long does it typically take to judge skill in stock picking?
Multiple years
What is the feedback loop for stock picking compared to other skills?
Takes years to see results and assess skill
What happens to top-performing money managers over time?
They eventually underperform their benchmark
What did Bill Bernstein suggest for those interested in stock picking?
Put 5% or 10% of money into individual stocks and track performance
What is the main reason the author prefers index funds over stock picking?
Simplicity and reduced emotional stress
True or False: The majority of stock pickers are likely to demonstrate their skill.
False
Fill in the blank: The best-performing 4% of listed companies explain the net gain for the entire U.S. stock market since _______.
1926
How many of the original 20 companies in the Dow Jones Industrial Average from March 1920 remained in the index 100 years later?
None
