Why Stock Picking is a Loser’s Game

My Investment Fell 40% in One Day...

I recently ran into an old friend at a bar in Boston. Almost immediately, he started pitching me a stock. My favorite thing to listen to outside of work while sipping on adult beverages…

It was some quantum computing company that he’s made a killing on. I didn’t want to spend another minute listening to the nonsense and talking stocks, so I told him I’d buy it. And, well, I actually did.

The company is called IonQ, (ticker = IONQ), and it’s in the quantum computing space, you know, the space we all know nothing about…

I had no clue what the company actually does or how the quantum computing industry will evolve over the years.

But I did dust off the ole auditor hat, flipped through their most recent 10-K, just to confirm that this company wasn’t a complete scam.

I mean they did lose $157 million in 2023 but who cares right?

But it’s ok, if I lose a few thousand bucks, I’ll be fine. I don’t gamble, so this was just me scratching that itch — just like you degenerates who throw $5 on a 10-leg parlay just to feel something.

A few days later, while relaxing after work, I got a notification on my phone, “IONQ falls 40% on the day” (lol)

I admittedly started laughing.

What the hell happened? Jensen Huang, CEO of Nvidia, made a public statement that he believes quantum computing is likely 15–30 years away from being truly useful.

Not exactly great news for a company entirely focused on quantum computing. This is coming out of the mouth of the Godfather of AI!!

Now, the stock has rebounded since then, and I’ve made a few bucks. Of course it did — we are in the midst of a bull market after all 😉

But this little experiment reminded me why I love index funds and why I steer clear of stock picking with the majority of my money.

When my investment fell 40% in 1-day, I questioned, why I’m doing this?

Picking stocks is hard.

Take it from Charles Ellis, who put it perfectly in an interview with Jason Zweig:

Watch a pro football game, and it’s obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, “I don’t want to play against those guys!” Well, 90% of stock market volume is done by institutions, and half of that is done by the world’s 50 largest investment firms, deeply committed, vastly well prepared — the smartest sons of bitches in the world working their tails off all day long. You know what? I don’t want to play against those guys either.

But I don’t have to play against them. Instead, I can hire them — by buying an index fund. Then they all work for me for free, because stock prices express the best judgment of all the investors out there. Most of the time, those prices are approximately right, so most of the time you’ll be wrong if you second-guess them. Factor in fees and trading costs — not to mention taxes — and you have to do about 20% better than average before your costs just to match the index after your costs. Stock picking is a loser’s game, but Wall Street loves creating the perception that you can win at it.

Just look at 2024.

The S&P 500 finishes up 23%, you’d think most individual stocks performed well, right?

Wrong.

133 companies within the index finished down 5% or more. That’s close to 27% of the index having a tough year, even though the overall index soared.

Imagine spending hours researching companies, getting emotionally invested, and debating internally when to buy more or sell, only to see your portfolio in the red while everyone else hit the cover off the ball.

Just brutal.

Meanwhile, if I had just owned the market via index funds, I could’ve taken all that time and energy I spent researching stocks and invest it in myself, my relationships, my business — you name it.

Yeah, maybe it’s boring. Maybe I don’t sound as smart by saying, “just own the market”, but it works.

This was the reminder I needed of the game I want to play when it comes to investing.

If low-cost index funds aren’t for you, that’s no problem at all.

Plenty of ways to play the market, you just have to find the one that works best for you and stay consistent for a long period of time.

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. I do not recommend you buy IONQ.

All indices are unmanaged and may not be invested into directly.

All investing includes risks, including fluctuating prices and loss of principal.