Do random dart-throwing portfolios beat professionals?
This article from the WSJ (paywall) compares individual stock picking abilities with one group (the journalists) throwing darts compared to professionals who each chose an individual stock. The 1-year results are astounding with the darts beating the professionals by over 20%!
This of course is a random comparison, in the fullest sense. Single year company stock results are fairly random to begin with, depending on many outside factors including market risk, political risk and industry risk - let alone the individual company risk! However, this fun comparison also confirm studies showing that index funds tend to outperform professionals.
What may be surprising is that the longer the time frame (5-, 10- and 15-years), the more an index fund outperforms professional managers. In other words the longer you invest, the more likely an index fund will do better than an actively managed fund. This research can be found over at SPIVA.This article inspired me to hold my own dart-throwing fun! In the fall I will hold an event where we’ll pin up a stock board and throw darts to pick our own portfolios. If you’re interested in joining me, just give me a holler (or comment below) and I’ll make sure to send you an invitation later this year.
What I'm Reading
Diversification is a free lunch when investing in stocks: you can increase your potential return with less risk. However, is the same true for bonds? This article makes some simple points to remember when it comes to the bonds in your portfolio.
I’m a huge fan of creating successful habits. James Clear presents another great story from Game of Thrones writer George R. R. Martin on why to focus on the environment and daily habits.
What I'm Listening To
While this podcast is called “The Stay Rich Portfolio”, it actually explores some myths about safe assets, cash and inflation. It’s a real eye-opener for those trying to be safe. Plus it’s a short episode so easy to tune in! There’s also an accompanying article for those who want to read.
Recovery is not negotiable. You can either make time to rest and rejuvenate now or make time to be sick and injured lateR