
You May Be Better Off Picking Stocks at Random, Study Finds - Vaslo
https://www.studyfinds.org/new-to-investing-you-may-be-better-off-picking-stocks-at-random-study-finds/
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WalterBright
This has been known for what, 40 years?

[https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street](https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street)

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flyGuyOnTheSly
Try 156 years!

> The concept can be traced to French broker Jules Regnault who published a
> book in 1863 [0]

[0]
[https://en.wikipedia.org/wiki/Random_walk_hypothesis](https://en.wikipedia.org/wiki/Random_walk_hypothesis)

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sixhobbits
If a random strategy is better than whatever the non-random strategy was then
intuitively in most cases the inverse of the non-random strategy is better
than the random strategy.

I am currently reading and would recommend "Bull!" by Maggie Mahar for a
longer term view on the stock market than many people today seem to consider
it on.

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kypro
I think the logic here is flawed.

Take a really simple portfolio... I buy (or go long on) 1 share of GOOG and 1
share of MSFT. Over a decade I make an average of a 7% return per annum, while
the random strategy makes, 8%.

What exactly would the inverse of my strategy be? To go short on GOOG and
MSFT? That would do even worse and in that case I'd actually lose money.

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jpttsn
Would it be long every stock except GOOG and MSFT?

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JKCalhoun
Boglehead reporting in, you should long every stock.

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jimclegg
Observation: I find the uptick in stock buying articles just when the market
is at it's frothiest quite interesting.

Stay vigilant out there traders, don't eat the 30% haircut that will be
visiting global financial markets shortly.

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harryh
I'm confident that haircut will come.

I am not at all confident that anyone can predict when it will come well
enough to avoid it.

Remember that the last 3 months of 2018 saw the market drop ~20%, only for it
to recover over the next 3. Were you able to sell in September and buy at the
bottom in December? Almost certainly not...

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jimclegg
Yes, our prop group made quite a bit with out-of-the-money AAPL 135 puts (AAPL
will hit this strike price again).

Alarms bells are ringing in this market... If your good at risk management and
can initiate low cost perma-bearish positions, you will be rewarded heavily
over the next year or so.

Alpha chasers that don't have risk management skills should just buy Bitcoin
(dont sleep on this, the halvening is May 2020-ish). Dollar-Cost-Averaging
will get you a decent entry price.

Warning: Bought more 120,130,140 AAPL puts in prep for next collapse, if your
in my way, I will literally eat your lunch.

Good luck guys!

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neilv
Isn't the audience for this _individuals unqualified to be investors_?

The UBC press release isn't as advertorial bad as the studyfinds.org piece,
but they both seem to implicitly endorse lottery-playing by unqualified
individual investors, IMHO.

The UBC release could've segued from "diversify", to pushing unqualified to
people to low-ER total-market index investing, or to balanced target funds
based on same. Instead, they're just helping pump unqualified people to gamble
and be fleeced.

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wolco
indexing is not random but a bet on the market as a whole.

Random is random. In a way picking more varieties may offer protection in a
downcycle.

Most stocks go up but bigger stocks push indexes. Betting on bigger players is
different than betting on any player to go up.

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klim_bim
Another recommendation would be to take an approach outside of price-based
time series models. Elastic has an article on this 'Generating and visualizing
alpha...' [https://www.elastic.co/blog/generating-and-visualizing-
alpha...](https://www.elastic.co/blog/generating-and-visualizing-alpha-with-
vectorspace-ai-datasets-and-canvas)

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momentmaker
Isn't this the whole premise of A Random Walk Down Wall Street.

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sparker72678
How is this not the same conclusion as other studies that find that index
funds out perform others?

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westurner
In addition to diversification that reduces risk of overexposure to down
sectors or typically over-performing assets, index funds have survivorship
bias: underperforming assets are replaced by assets that meet the fund's
criteria.

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walshemj
Yes its sad that every one jumps on index funds which can be a good idea but
its not the right choice 100% of the time.

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OrgNet
2 years after the ~2008 crash, I bought stocks in 4 companies that didn't yet
recover yet from the crash... 2 of them doubled in value in just a few months
and 2 of them went to basically zero... so I just about broke even.

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grenoire
A portfolio of four stocks is as good as a single random stock. Diversify
more, there's a reason why the S&P500 is 500.

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shoo
i think the utility of further diversification becomes pretty low after you
have around 30 stocks in a portfolio. assuming those 30 stocks are actually
diversified and are not e.g. 30 tech companies, or 30 companies in the UK.

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ghettoimp
I wonder if there's any advantage to picking 30 stocks versus just investing
in some big index fund like VT or whatever.

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shoo
There's a lot to be said in favour of investing into a low cost ETF that
attempts to passively approximate the distribution of stocks as they appear in
the market.

I think there are potential advantages to selecting stocks or weighting stocks
according to criteria other than market capitalisation (unlike passive
investment approach) but most people who try to do that do worse than a
passive approach.

A passive investment approach like putting money into VT ETF depends upon some
fraction of market participants doing the work to actively set market prices.
If enough of the market goes nuts and bids up the price of some security far
above its actual value (e.g. IPOs for businesses that run at a loss with no
obvious path to making a profit) then the downside of a passive approach using
market capitalisation as weights is that you will invest some tiny fraction in
these companies with irrationally inflated market caps.

Part of it is also a question of how much time and mental energy you want to
put into learning about how to value companies and investigating options for
investment. Investing in 30 individual stocks vs 1 ETF also creates about 30x
as much work at tax time...

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morelandjs
Yes, variance is reduced by averaging over many uncorrelated variables. This
sums up about 75% of investing articles.

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alkonaut
_May be_? We have known for years (decades?) that beating the market isn’t
exactly easy even for professionals. So why would amateurs? The only way to
beat the market is to know more than the market.

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ghettoimp
Knowing more than the market could work - that seems like winning through
skill. Perhaps a second (perhaps even a more likely) mechanism would be
winning through luck?

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deepnotderp
Firms like renaissance have and continue to dramatically beat the market.

However, renaissance also has a collection of people that could probably
produce a Nobel in physics if that's what they worked on.

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RickJWagner
"Why look for the needle in a haystack, when you can just buy the haystack?"

\- Jack Bogle

The secret to wealth building can be found at bogleheads.org

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tsss
This is a non result. Of course picking singular stocks yourself with little
understanding of the financial market or the companies in question is a
terrible idea. The real question is: Does this approach perform better than a
maximally diversified index fund?

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lsc
I read the article as a "just buy a low cost whole market index" \- which
seems to be the most common advice out there.

Assuming your randomness generator was fair and you bought enough stocks, your
'buy stocks at random' strategy, if you bought enough stocks, would eventually
get you that maximally diversified index fund, I think?

I mean, I think the difference at scale is all in the weighting; if you bought
one share of a random ticker on every throw of your random generator, you'd be
overweight stocks with high per-share values vs. just buying, say, a basket of
VTX, VXUS and VWO, which are weighted in more reasonable ways.

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EGreg
Are they trying to confirm this?

[https://en.wikipedia.org/wiki/Efficient-
market_hypothesis](https://en.wikipedia.org/wiki/Efficient-market_hypothesis)

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icebraining
Not really, because they're only talking about amateur investors.

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sjg007
You’d need international exposure on your national exchange. Also by this
logic multinationals should be solid investments but maybe they lack growth
potential.

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makz
Isn’t it the same as an index fund?

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oyebenny
Just not in altcoins. Just don't.

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pavlov
In public stocks there are always underappreciated future growth rockets. You
can try to find them by analysis, at random, or by buying the entire index.

Altcoins don’t have growth fundamentals because nobody uses them, so at best
you’re betting on holding a coin and selling it to a bigger sucker.

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lawn
Considering that Bitcoin has very high and unreliable fees it's not good to
buy things with. Instead Bitcoin Cash has gained a lot of adoption recently,
for example all stores using BitPay also accept Bitcoin Cash. Also Monero is
far superior in terms of privacy (and fungibility).

These are two examples with much better growth potential than Bitcoin, while
being underappreciated by the masses.

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cryptoz
I read the article and tried to read the linked study (paywall). But I see no
mention of the 'random' part of this outside the introductory paragraph. In
order for the headline to be true, wouldn't the study have had do asses some
performance of 'random' picks?

Rather it seems that people were encouraged to take more 'risky' stock picks,
and _that_ led to some improved success, not anything to do with random.

I think the title and introduction are wrong, having extrapolated incorrectly
from the study itself. I don't really know since I can't read the study.

But I think I strongly disagree with the premise. I think picking stocks at
random is likely to lead to uninterested investors who may lose interest in
frequent contributions to their stock accounts as they have no personal
connection or awareness or interest in the location or use of their funds.

Yes, diversification is important, but so is awareness. Is it really _better_
for the individual who may unknowingly invest in weapons manufacturing or a
declining coal business despite their own morals and indicators of poor picks?
I don't even think this was tested for in the first place.

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icebraining
If you're interested in the actual study, I found it here:
[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2956122&...](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2956122&download=yes)

(If a signup form appears, just scroll down)

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czbond
This is absolute malarky made to make people feel better about sub-optimal
returns. There are definitely strategies which provide greater than 8-10% YoY
returns, or random walk, or indexes. People that know them, rarely will share
the full - but will occasionally share glimpses. It can be hard to do for very
large portfolios, say $10B+, but not for smaller portfolios.

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ryandrake
Notice how whenever someone claims there are ways to consistently beat the
market by some incredible amount, they never seem to be able to point to
anything specific. It’s always “Ohhh, there are these hidden wizards who do
it, and they (conveniently) don’t tell anyone the ways of their sorcery, but
trust me, they exist in dark smoky rooms somewhere!! You’re just not invited.”

It’s like “I assure you, extraterrestrials exist, there’s just no visible
evidence of them and they never show themselves. But they’re out there I
swear!”

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B-Con
Not a good analogy because the people who hypothetically can best the market
have incredible incentive to not share the details.

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lixtra
Sometimes they share how they beat the market in the past after their
advantage faded, i.e. [http://www.edwardothorp.com/books/a-man-for-all-
markets/](http://www.edwardothorp.com/books/a-man-for-all-markets/)

