If you have ever wondered whether stock picking is worth it when most investors fail to beat the market, this blog post gives you a deeper answer. It challenges the idea that index investing is the easy solution. You will learn why “just buy the index” is not as passive or risk-free as it seems, and how stock picking - even a little - can help you stay disciplined, avoid panic, and build conviction. The post also outlines four simple ways to take control of your investing, from full DIY to guided newsletters. A must-read if you want more control and confidence in your portfolio.
Estimated Reading time: 6 minutes
What’s the Point of Stock Picking If Most People Fail to Beat the Market?
A long-time reader recently asked a question that goes right to the heart of modern investing:
"What is the benefit of stock picking if we fail to beat the market over the long term, just as the vast majority of investors? Shouldn't one just invest in an index fund?"
It is a great question, maybe the question. One you perhaps think about a lot, I know I have.
I have written about this indirectly before. You can read more here: 👉 Why You're Not Failing: Choosing the Right Investment Benchmark
But in this post, I want to go deeper. Because while index investing sounds like the easy answer, the reality is more complicated. And more interesting.
“Just Buy the Index” Sounds Easy. But Which Index?
The S&P 500 dominates the headlines. But it was not always the top performer. What about the FTSE All Share, the Euro STOXX 600, or MSCI Japan? When someone says "just buy the index," they are usually pointing to whichever index did best in hindsight. That is not a plan. That is cherry-picking also called data mining.
Let’s say it is 2003. The Nasdaq is still down 70% from the dotcom bust. Would you have “just bought the index” then? Probably not. Would you have picked Japan in 1990? Hopefully not.
This exposes the first flaw: Index investing only looks effortless in hindsight. In reality, you still must pick a region, a currency, and a risk profile. Each choice carries consequences. And you must do this in advance!
The Currency Risk Few Talk About
If you live outside the USA, think Australia, Europe or the UK, investing in the S&P 500 means betting your entire portfolio on the US dollar. What if the Euro or the Pound strengthens for the next decade? Or the dollar weakens? Your “market return” could vanish due to currency shifts.
You can hedge, of course. But then you are actively managing again. So much for “passive” investing.
What Index Investors Get Wrong About Risk
All the articles that compare active investing to passive index funds assume one thing: you are invested all the time. But that is not how real humans behave.
The S&P 500 has crashed over 50% more than once. Do you know how it feels to watch half your retirement vanish? To wait years just to break even? Most people do not ride it out. They panic. They sell at the bottom. Then they wait too long to get back in. Spreadsheet returns assume perfect discipline. Real-life returns often look very different.
That is where having a stock-picking process - even a simple one - can help. When you know why you own something, you are less likely to sell it in fear. Also, you can follow stop loss rules and stop buying when markets fall, like we do with the newsletters.
Is Now the Time to Buy the S&P 500?
Let’s assume you want to go passive now! What will you buy?
The S&P 500 today is more concentrated than ever. The top 7 stocks make up over 30% of the index. Most of those are riding the AI hype. If that bubble pops, your “diversified” investment is not so diversified.
Passive investing still means making a choice. And in today’s market, that choice carries serious risk.
The Case for Stock Picking Is Not Just About Beating the Market
Let me be clear: stock picking does not guarantee outperformance.
But that is not the only reason to do it. You do it because:
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It helps you stay invested. You own what you understand.
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It gives you control. You do not need to accept whatever the market gives.
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It builds conviction. When you research a company yourself, you build belief, and that belief can protect you when markets fall. It lets you hold a good company or even buy more.
And yes, with the right system, stock picking can still beat the market. Just ask the many investors using systematic strategies like ours - Quant Value or Shareholder Yield - who have seen consistent performance over the years.
Click here to start finding investment ideas that EXACTLY meet your investment strategy.
You Can Pick Your Level of Involvement
One reason this debate exists is because people assume only two extremes:
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You go passive with index funds
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You become a full-time stock researcher
But there is a spectrum.
For example, here are four levels of engagement:
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Level 1: Set and forget. Buy a global ETF. Done.
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Level 2: Smarter passive. Use a rules-based ETF strategy like Dual Momentum.
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Level 3: Guided active. Follow a newsletter like our Shareholder Yield Letter. We pick large, high-quality stocks with strong income and capital return. You make a few trades per month.
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Level 4: Full DIY. Research your own small and mid-cap stocks. Backtest. Build screens. Track watchlists.
Each level has trade-offs. There is no one right answer. The best strategy is the one you can stick to. The one that fits your time, your temperament, and your goals.
Finally… It’s Fun
This is often overlooked.
Stock picking is intellectually stimulating. It keeps you learning. You explore companies, industries, and trends around the world. It makes investing personal, not just abstract.
And for many of us, that is the point.
So, Should You Pick Stocks?
Maybe. Maybe not.
But before you throw in the towel and go all-in on an index, ask yourself:
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Do I understand the risks of indexing (currency, concentration, volatility)?
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Am I emotionally equipped to sit through a 50% drawdown?
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Do I want to take a more active role in my financial future?
If you answer yes to any of those, then stock picking may still have a place in your strategy. Not as a gamble. But as a structured, disciplined way to grow wealth over time. And if you want help, that is what we are here for.
Click here to start finding investment ideas that EXACTLY meet your investment strategy.
FREQUENTLY ASKED QUESTIONS
1. Why should I bother picking stocks if most people fail to beat the market
Because the goal is not just to beat the market. Stock picking helps you build conviction, stay invested, and understand what you own. That alone can keep you from selling in a panic. With a disciplined strategy, you can also still outperform over time. The key is not guessing. It is following a system.
2. Is index investing really as safe and simple as it sounds?
Not always. You still have to choose the right index, region, currency, and timing. That means you are making active decisions even when you go passive. And during deep market drops, many investors panic and sell. A system you understand can protect you better than an index you do not.
3. What are the hidden risks of just buying the S&P 500?
Right now, the S&P 500 is very top-heavy. The top 7 stocks make up over 30% of the index. That is not true diversification. If those few stocks fall, your whole portfolio suffers. And if you are outside the US, currency swings can reduce your returns without you realising it.
4. Can stock picking help me avoid big losses during market crashes?
Yes. With the right process, you can set stop-loss rules and avoid buying in falling markets. Many systematic strategies, like the ones we use, include these rules. That means you are not blindly riding down a 50% loss - you are managing risk with discipline.
5. What if I do not have the time or experience to pick stocks?
You do not have to go all-in. There is a spectrum. You can follow a rules-based newsletter, use a simple screener, or combine indexing with just a few active picks. The best approach is one you can stick to over the long run. Your time, your comfort, your rules.
6. How does stock picking help me stay emotionally strong during downturns?
When you understand the companies you own, you are less likely to panic. You know why you bought them. That belief helps you hold through the storm - or buy more at better prices. Index investors often lack that connection, which is why they sell low and buy back too late.
7. Is investing meant to be fun or just practical?
Both. Stock picking is not just about returns. It is about learning, curiosity, and having control. You explore companies and trends. You feel involved. That personal connection can keep you going through ups and downs. And that consistency is what builds real wealth.
Click here to start finding investment ideas that EXACTLY meet your investment strategy.
