US

Diversification

In general, absent any inside information, an equity investor can expect to do better by choosing a well-diversified, low-cost index fund than by picking a few stocks.

Responses weighted by each expert's confidence

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Agree
7
Bio/Vote History
Alesina
Alberto Alesina
Harvard Did Not Answer Bio/Vote History
Altonji
Joseph Altonji
Yale
Strongly Agree
9
Bio/Vote History
Auerbach
Alan Auerbach
Berkeley
Strongly Agree
9
Bio/Vote History
Autor
David Autor
MIT
Strongly Agree
8
Bio/Vote History
Baicker
Katherine Baicker
University of Chicago
Agree
3
Bio/Vote History
Banerjee
Abhijit Banerjee
MIT
Strongly Agree
9
Bio/Vote History
Bertrand
Marianne Bertrand
Chicago
Strongly Agree
3
Bio/Vote History
Brunnermeier
Markus Brunnermeier
Princeton
Agree
9
Bio/Vote History
Chetty
Raj Chetty
Harvard
Strongly Agree
8
Bio/Vote History
Chevalier
Judith Chevalier
Yale
Strongly Agree
9
Bio/Vote History
Stock picker bears a lot of idiosyncratic risk
Currie
Janet Currie
Princeton
Strongly Agree
9
Bio/Vote History
Cutler
David Cutler
Harvard
Agree
7
Bio/Vote History
Deaton
Angus Deaton
Princeton
Agree
7
Bio/Vote History
"Better" is delightfully vague.
Duffie
Darrell Duffie
Stanford
Strongly Agree
10
Bio/Vote History
Sounds like a trick question! This one is obvious: diversification is a big benefit, even putting aside fee savings.
Edlin
Aaron Edlin
Berkeley
Strongly Agree
10
Bio/Vote History
The typical investor is certainly best off buying a low-cost indexed fund. That said, money may be makable without inside information.
Eichengreen
Barry Eichengreen
Berkeley
Agree
7
Bio/Vote History
Einav
Liran Einav
Stanford
Disagree
7
Bio/Vote History
Fair
Ray Fair
Yale
Agree
5
Bio/Vote History
Finkelstein
Amy Finkelstein
MIT
Strongly Agree
10
Bio/Vote History
Goldberg
Pinelopi Goldberg
Yale
Agree
6
Bio/Vote History
Goolsbee
Austan Goolsbee
Chicago
Strongly Agree
10
Bio/Vote History
(DUH)
Greenstone
Michael Greenstone
University of Chicago
Strongly Agree
7
Bio/Vote History
Hall
Robert Hall
Stanford Did Not Answer Bio/Vote History
Hart
Oliver Hart
Harvard
Strongly Agree
10
Bio/Vote History
In equilibrium the typical investor cannot beat the market. Thus a well-diversified buy and hold strategy is best for such an investor
Holmström
Bengt Holmström
MIT
Strongly Agree
9
Bio/Vote History
Hoxby
Caroline Hoxby
Stanford
Agree
9
Bio/Vote History
There is ample empirical evidence for this claim.
Hoynes
Hilary Hoynes
Berkeley
Strongly Agree
10
Bio/Vote History
Judd
Kenneth Judd
Stanford
Strongly Agree
10
Bio/Vote History
Kaplan
Steven Kaplan
Chicago Booth
Strongly Agree
9
Bio/Vote History
Kashyap
Anil Kashyap
Chicago Booth
Strongly Agree
7
Bio/Vote History
Almost everyone should be investing in this way and ignoring tips from friends and experts on particular stocks.
Klenow
Pete Klenow
Stanford
Strongly Agree
10
Bio/Vote History
Keepi the expense ratio down!
-see background information here
Levin
Jonathan Levin
Stanford
Agree
5
Bio/Vote History
Key words here are "in general" - most people are unlikely to replicate Warren Buffett's performance.
Maskin
Eric Maskin
Harvard
Agree
8
Bio/Vote History
Nordhaus
William Nordhaus
Yale
Strongly Agree
8
Bio/Vote History
Obstfeld
Maurice Obstfeld
Berkeley
Uncertain
10
Bio/Vote History
Literally, "expected" return may be higher than for diversfied basket, despite higher variance. Does "do better" include pain of variance?
Saez
Emmanuel Saez
Berkeley
Agree
3
Bio/Vote History
Samuelson
Larry Samuelson
Yale
Agree
8
Bio/Vote History
Picking a few stocks makes sense only if one has better information than the market, which is unlikely without inside information.
Scheinkman
José Scheinkman
Columbia University
Strongly Agree
9
Bio/Vote History
Schmalensee
Richard Schmalensee
MIT
Agree
7
Bio/Vote History
Not a great question: "a few stocks" might hit it big, "do better than" and "in general" are not well-defined.
Shapiro
Carl Shapiro
Berkeley
Strongly Agree
8
Bio/Vote History
Diversification rocks. Perhaps there are some exceptions for some investors, e.g., based on a tax angle.
Shimer
Robert Shimer
University of Chicago
Strongly Agree
9
Bio/Vote History
Aggregate stock returns have some forecastibility, but this is a question about individual stocks
Shin
Hyun Song Shin
Princeton Did Not Answer Bio/Vote History
Stokey
Nancy Stokey
University of Chicago
Strongly Agree
10
Bio/Vote History
You could do the diversification and periodic rebalancing yourself, and perhaps save a few dollars in transaction costs, but why bother?
Thaler
Richard Thaler
Chicago Booth
Strongly Agree
10
Bio/Vote History
The annual test to see whether panelists are awake.
Udry
Christopher Udry
Northwestern
Strongly Agree
9
Bio/Vote History
Unless, of course, you *like* the thrill of gambling.