Apprenticed Investor: There Are No Shortcuts

I bet that over the course of a year, I can outperform most people's favorites by 20% by using only techniques discussed in the Apprenticed Investor series, such as stop-losses, money management, position-sizing, etc.

The point of this exercise is to demonstrate that stock selection is far less important to performance than a host of other factors. The overemphasis on stock-picking permeates the financial media. It's easy to see why. It has a good story line, an inherent dramatic conflict. It lends itself to the horse-race-type coverage that's so easily done. Plus, it's easy for readers to comprehend: Buy this, don't buy that. You can understand why the media and investors overemphasize it.

But the fact remains that regardless of the importance put on stock selection, most investors have underperformed the market, despite, I may add, recently going through the greatest bull market in history. That should raise serious questions to those whose sole emphasis is stock selection.

Consider how many fantastic stocks people owned in the late 1990s: Cisco (CSCO Quote), EMC (EMC Quote), Dell (DELL Quote), Yahoo! (YHOO Quote), Amazon.com (AMZN Quote), Intel (INTC Quote), Microsoft (MSFT Quote), Qualcomm (QCOM Quote), Juniper (JNPR Quote), AOL, Iomega (IOM Quote) -- the list goes on and on.

Yet despite these marvelous stock selections, many people, probably most, did not do all that well. I would even hazard to guess that many holders of these terrific stocks ultimately lost money on them.

Where's your stock selection, now?

Better Investing Through Reading

Next week, we will discuss several investment-related books you should be reading. I will put together what amounts to a full course offering. It should take you several years of study to complete.

That's right, years. While some people would like to convince you that they have uncovered a shortcut, the overwhelming evidence -- painstakingly acquired through decades of investing and trading -- is this: Forget the magic formulas and the "get rich quick" come-ons: Investing is hard work.

If the market teaches us anything, it is that there is no free lunch. You don't get something for nothing. Be wary of any book that suggests otherwise.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Iomega to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.