Stocks in general are a bad investment

Index Funds Advisors president Mark Hebner lists some good reasons to avoid stock picking:

#1 — Let’s Make a Deal

If someone wants to invest in stock A, he or she has to first find a seller of stock A. But, if said stock is such a great investment, why would anyone want to sell in the first place?

#2 — No Risk-Return Premium

Investing in individual stocks is much riskier than investing in a diversified portfolio.

#3 — Information is “Baked in the Cake”

All investors and their information are basically created equal, says Hebner.

So, if you cannot consistently win — and win big — by picking stocks, what should you do?

Hebner says, forget stocks and mutual funds, “all you have to do is buy the market” by investing in a diversified portfolio of index funds.

Read the full article.

Sovereign Investor:  Is Hebner right?   Is the market really as efficient as he suggests? If so, sovereign investors can breathe a sigh of relief that they're big enough to effectively run an index fund themselves.  But what about all those active managers out there?  Are they making a living out of holding your perfectly baked cake but nibbling at it as they go?