Why picking stocks is a ‘Loser’s Game’

I just read Charles Ellis’s classic 1972 paper “The Loser’s Game“.  In plain English (and only 7 pages), Ellis deftly describes why professional investors fail, and will continue to fail, to beat passive indexes (which are my favorite investment recommendations.)

It’s a good read if you’re interesting in investing.  (If you ignore my and Ellis’s advice, here’s a brief primer on how to go about picking individual stocks.  Proceed at your own risk.)

2 thoughts on “Why picking stocks is a ‘Loser’s Game’

  1. I just want to say that I am a fan of Jim Cramer and the entire crew of “Fast Money”. I will go out on a limb and say that index funds are probably very good, but I will just say that outside the value of money, the value you get from having “fun” day trading is better.

    I will say though to anyone reading this before you shake your head, that not all my money is tied up into stocks that I hold for less than a month, I do have a retirement fund.

    • My investing advice pertains to making money. Having fun is a great pursuit, but should be thought of as separate from ‘investing’ defined as a wealth-maximization activity. Cramer’s television show advice is probably among the worst behavior a person could emulate in their own portfolio (due to trading costs, time wasted, stress, taxes, etc.)

      @ Greg – Despite your crazy-sounding opinions, I think you would concur with this, and I know that you’re retirement fund is separate from your (much smaller) gambling/speculative stock portfolio, which is a wonderful thing.

      Also, you’re certainly not ‘going out on a limb’ by declaring index funds ‘probably very good’. There is an enormous body of empirical research and finance theory that confirms how superior index funds are compared to actively-managed investments (including professional & amateur selection.)

      (One last comment: no offense, but your statement that ‘outside the value of money, the value from having fun day trading is better’ makes no logical sense. You’ve excluded ‘value of money’ from comparison, and then say fun is ‘better’. Better than what, since you say ‘outside of money’? I think what you mean to say is ‘day trading, while likely a loser financially compared to index funds, is more fun than investing in index funds.’ Personally, I’ll take my fun on a beach in Tahiti, thanks to the extra wealth from my index funds :))

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