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