“Why is investing the only job, hobby, or activity where people are told not to try?”
It’s true that indexing proponents discourage people from trying to pick their own stocks and suggest they just buy an index of all stocks. Golfers can improve through training and practice; why can’t stock pickers improve?
The truth is that we can improve our abilities to analyze stocks. But investing offers an alternative not available to golfers. Imagine if you had the option to receive the average prize at the next professional golf tournament without doing anything at all. Instead of hoping for some natural golf talent, buying equipment, spending years building skills, and traveling to tournaments, you just sit on your couch and collect the average player’s prize.
Of course, we don’t have this option in golf, but we can do it with investing. Instead of competing with the bulk of investing dollars controlled by professionals, we can just get their average performance by investing in index funds.
It’s true that if I work at it I can learn to analyze stocks better. But I won’t become better than the average professional investor. I can shrink the gap between me and the pros, but I’ll remain better off just buying index funds.
There are a small number of investors who may be able to build the skills necessary to compete effectively with investing pros, but almost all of us are better off focusing on a sensible asset allocation and buying index funds.
There are some who will say they’d rather play golf than sit on the couch. So would I. But I know I’ll never play well enough to compete with the average golf pro. Sometimes for amusement I look at some individual stocks, but I don’t buy them because I can’t compete with investing pros.
Stock picking isn’t the only activity where the option of just taking the average result is available. Consider poker. In a friendly game where there are no pot rakes or seat fees, the average player makes nothing at all. The money shifts around, but the total amount held by all players stays the same. If you want to get the average result of all players, just don’t play. In fact, you’ll beat the average of the other players this way after we consider costs like pot rakes and seat fees. A similar thing happens with indexing. Index investors actually get better results than investing pros after we consider the lower fees that indexers pay.
The number of active stock pickers who beat indexing over the long run is very small, but the number of active stocks pickers who say they beat indexing is very high.