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PREFACE
There is a disappointing and sometimes shocking
story to tell about the financial services
industry. It may be even called the industry’s
dark secret. This secret was first revealed
and published on March 29, 1900 by Louis Bachelier,
and was followed up by hundreds of academic
studies. Unfortunately, few investors pay
any attention to academics and Nobel Laureates.
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 Education
- Step 3 : Stock Pickers
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Enlarge4
 Stock
pickers are exactly what their name implies - active investors
who pick stocks or even mutual funds based on perceived
mismatches between the current market prices and their
supposed true values. This is a major problem. In this
random and efficient market, there are no mismatches between
the current market prices and their true value.
Stock pickers are listening to their feelings
and instincts when deciding what stock to pick. A
study in this Step reveals that the chances of the
active manager beating the appropriate index are one
in thirty-six, the same long shot as throwing snake
eyes at the craps table! Less than three percent of
managers even beat their proper benchmark. Unlike
methodical index investors, active investors who try
to stock pick are little more than gamblers who rely
on raw emotion and their imagined ability to predict
tomorrow's news. As Nobel Laureate Bill Sharpe asks,
"why pay people to gamble with your money?"
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