Wealth column: Why stock picking is not as easy as bracket picking
Maybe you'll decide to pick your teams by their mascots, the big names you've heard before or by following what the experts call for, but you need to decide soon—Selection Sunday is almost here.
If you're not familiar, we're talking about the beginning of the NCAA Men's Basketball March Madness tournament. You may recognize it as that time of year when your colleagues and friends are talking about their brackets and scheming to win bragging rights for guessing the winner of this year's tournament.
In honor of this annual tradition, we wanted to take a look at another kind of selection process you may be considering: stock picking.
Your Guess is as Good as Mine
Whether you're betting on a basketball team or which stock will earn you the highest return in the next year, it truly is a guess. With 63 matchups and 50/50 odds of getting each right, participants have about a 1 in 9.2 quintillion chance of guessing the outcome of each game correctly.
It would be difficult to give you the odds of picking the correct stocks at the correct time and holding them for exact the right amount of time to make the highest return possible, but you get the point. At the end of the day, your guess is as good as mine.
Now, it's not impossible to get ahead with a stock picking strategy, but what we often see are people confusing luck for skill. Just because you've guessed right in the past, doesn't mean that stock picking is the way to secure yours and your family's futures.
Picking the Big Names Isn't Always the Answer
For most of us, when we think of companies that trade in the New York Stock Exchange, we think of names like Amazon, Disney, Microsoft and Apple. And just hearing those names over and over means that we're more likely to gravitate towards those stocks thanks to something called availability bias. But just as it's unlikely to the two top teams at the beginning of the March Madness tournament make it to the final, picking the top performers on the S&P 500 is unlikely to end up getting you the return you're hoping for.
Following the Experts Isn't a Sure Bet Either
Every year we watch our favorite sports networks to see who the experts see as the long shot, the dark horse and the favorite who's most likely to lose in the first round. But how often do those predictions turn out to be 100 percent accurate? The same idea applies to economists and the stock market experts on network television.
While following the guidance of a trusted expert in the field of finance can be a good thing, when it comes to talking heads on television, our advice is to be wary and understand that their picks aren't going to work for everyone.
Why the Full Picture is More Important
While the idea of picking your own stocks and hoping to earn big returns can be exciting and
empowering, we suggest working on a more stable, yet equally empowering strategy that incorporates your entire financial life. By working with a financial advisor who understands your goals, risk tolerance and time horizons, you may find that you can do all the things you've been planning for with less stress and more confidence.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk, including the risk of loss.
The company names mentioned herein are for educational purposes only, and not a recommendation to buy or sell the security.