Expert's View 名家觀點


一月 1 , 2020  

Is Stock Picking for Everyone?


by Charles Cheng, CFA



Stock picking is a time-honored investment strategy. Famous investors like Warren Buffett and Peter Lynch made their fortunes almost exclusively through investing in individual publicly traded companies. Yet both of these legends have suggested that most investors would be better off investing in the broad market. How do you know then if you should focus on picking companies and when you should not?

選股是一項需要時間證明的投資策略。沃倫·巴菲特(Warren Buffett)和彼得·林奇(Peter Lynch)等著名投資者幾乎都是通過投資於個股來發家致富。然而,這兩人的傳奇都表明,大多數投資者最好還是投資於大範圍的市場。但您怎麼知道您是否應該專注於挑選公司,何時不應該呢?



First, investors need to understand the challenges behind trying to outperform the broad market through security selection. The price of each individual stock throughout a day is set by thousands to millions of investors and traders actively making the decision to buy or sell at different moments, supported by professional market makers. Therefore, any publicly available information is rapidly incorporated into the price, making profiting from trading rather than investing extremely difficult. From an investment point of view, that also means that seemingly compelling stories about why a company has good prospects all already well known by anyone buying or selling the stock on a given day, so the information is already built into its valuation.




Also, within the broad market’s performance, returns are not distributed anywhere near uniformly. As noted in an earlier notes, only small minority of stocks drive most of the performance of the overall market. A study by Professor Hendrick Bessembinder found that 61% of global stocks underperformed treasury bills over the previous three decades and only 1 percent of stocks accounted for the majority of stock market wealth creation.

而且,在大盤表現中,收益不會平均分佈在任何地方。如之前的文章所述,只有少數股票驅動著整個市場的大部分表現。 Hendrick Bessembinder教授進行的一項研究發現,在過去的三十年中,有61%的全球股票的表現不及國庫券,而只有1%的股票構成了股市財富增值的絕大部分。


Figure 1:

Source: Do Global Stocks Outperform US Treasury Bills?, July 2019, Bessembinder, Hendrik (Hank) and Chen, Te-Feng and Choi, Goeun and Wei, Kuo-Chiang (John)


Counterintuitively, this implies that a more concentrated stock portfolio significantly increases the chances of underperforming the market. While it’s true that a more diversified portfolio decreases the possibility of massive outperformance, the possibility of hitting a home run is also very slight.




A final major consideration is opportunity cost. Sometimes, specialized knowledge, perhaps about a company or industry will help someone gain an above average chance to find an outperforming company. But the advantage perhaps is limited to one or a few companies and requires a lot of research and analysis. For someone who is not doing this full time and or does not have the resources to continually find these advantages, they are not going to find enough of these investments to fill their portfolios or commit the majority of their assets. The cash they have on the sidelines waiting for these ideas could have been generating returns, and even if their individual investments outperforms their entire portfolio would underperform, especially in a bull market like we’ve had over the past decade.




Taken together, the above means that investors without the means and time to construct an entire portfolio of individual stocks would be better served leaving the stock selection to someone else. Buying stocks solely based on the recommendation of a broker, private banker, or acquaintance for the purpose of making a winning bet is much more likely to cause you to underperform. Instead, one should keep in mind that being consistently invested in return generating assets long term is the ultimate objective.




Mr. Cheng is a managing partner at a Hong Kong based independent private investment office. This article reflects his personal views and not his firm’s and should not be viewed as an investment recommendation.