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Darts And A Cat Pick Stocks
They both do better than Wall Street Professionals
Many years ago, I read A Random Walk Down Wall Street.
Since this was over 30 years ago, I don’t remember all the details. However, one thing that stuck out to me was the book’s comparison of individual stock price fluctuations with a drunkard’s walk. This stuck out to me because I remember the Drunkard’s Walk problem from a class in probability theory I took at MIT.
And, looking back, that makes sense. Many investers use probabilty theory with varying degrees of success.
At any rate, I remember the book claimed that in the short and mid-term, stock prices varied in a random fashion. However, in the long-term, stock prices become more predictable.
While prices can and will fluctuate on a daily, weekly, and monthly basis, over the course of a year trends are steadier. To further minimize uncertainty, the book recommends sticking to index funds or ETFs. The exception would be those so immersed in a particular sector that they have an intimate knowledge of trends in that field.
For most people, however, avoiding individual stocks is a wise strategy.
This is because most people are not very good at trading stocks, as a 2013 article in The Guardian shows.
