On Sat, 12 Jan 2002, Richard Pisacreta, Ph.D. wrote: > > Any of you Tipsters study the stock market? Can you off the > rest of us any advice for next year to offset the terrible > returns of the last two years? Any of you in TIAA-CREFT > pension plans have any advice on how to distribute future > allocations?
Perhaps we can justify this question on TIPS by suggesting it raises an important psychological question. This is why people allow themselves to be guided by experts who have no expertise. I speak of brokers and "financial advisors". If no one goes for this, I say, what the heck, it's a slow week-end on TIPS, and it's a fun question. My understanding is that the stock market is "efficient", which means that the price of a stock fairly represents all information available about the company and its prospects. Consequently, there are no bargains and no dogs. Aside from degree of risk, it doesn't matter which stock you choose. Forget analysis. I did a web search to confirm the above, and came up with an apparently authoritative analysis of the efficient market hypothesis at http://www.investorhome.com/emh.htm. Bottom line: "If markets are efficient and current prices fully reflect all information, then buying and selling securities in an attempt to outperform the market will effectively be a game of chance rather than skill." and "Many novice investors are surprised to learn that a tremendous amount of evidence supports the efficient market hypothesis" Corollaries: 1) A monkey throwing darts at a page of stock listings will, on average, do just as well as the finest financial advisors money can buy. In fact, the Wall Street Journal runs such a contest yearly (using reporters rather than monkeys, about the same thing), This year, the dart method outperformed the experts (see http://www.onegroup.com/ReadingRoom/stockpick.asp) 2) Never listen to a broker's recommendation. As they have no more ability to predict stock movement than anyone else, their recommendations will be based on how your choice can earn them the most money. Brokers are always conflicted. Consider why they prefer to earn commissions off you rather than putting their alleged expertise to work on their own behalf. 3) With the exception of the above, never listen to anyone's advice on the stock market. They know as much as you, which is to say, nothing. 4) Since stock-picking is futile, choose stocks that are fun to hold. I like high-tech genetics companies. Not only is the science amazing, but the potential health benefits are staggering. The fact that they're all money-losing and likely to go bankrupt should only be mildly discouraging. -Stephen ------------------------------------------------------------------------ Stephen Black, Ph.D. tel: (819) 822-9600 ext 2470 Department of Psychology fax: (819) 822-9661 Bishop's University e-mail: [EMAIL PROTECTED] Lennoxville, QC J1M 1Z7 Canada Department web page at http://www.ubishops.ca/ccc/div/soc/psy Check out TIPS listserv for teachers of psychology at: http://www.frostburg.edu/dept/psyc/southerly/tips/ ------------------------------------------------------------------------ --- You are currently subscribed to tips as: [EMAIL PROTECTED] To unsubscribe send a blank email to [EMAIL PROTECTED]
