Tags: Dubner | Levitt | stock | pick

Freakonomics Authors: Stock-Picking Pros 'As Good As a Monkey With a Dartboard'

By    |   Thursday, 29 May 2014 12:30 PM

Don't waste your time or money with professional stock pickers. A monkey with a dartboard will work just as well, according to Freakonomics authors, journalist Stephen Dubner and economist Steven Levitt.

"The incentives of fund managers are very different from the incentives of investors which are very different from the incentives of bond issuers," Dubner tells CNBC. "A very important first step is to find who has skin in the game."

If you examine the ability of professional stock pickers, he says, you find that "the experts, the people that we must revere, the people that we pay the most, are generally about as good as a monkey with a dartboard."

Editor's Note:
Secret ‘250% Calendar’ Exposed — Free Video


Investors, Dubner argues, must consider the incentives of their money managers, their incentives and "how counter intuitive you can afford to be."

Fund managers might be armed with years of market experience and in-depth research, yet there's always someone else on the other side of that trade who is just as smart and well-informed, Levitt adds.

"One of you is right and one of you is wrong. You have all of these incredibly smart people and that's why markets are so efficient — because on every side of the transaction you've got these good people doing it."

In their best-selling book "Freakonomics," the authors used economics to reach controversial conclusions about a range of diverse topics, such as abortion, parenting and drug dealing. Their new book, Think Like a Freak, examines such diverse topics as a Japanese hot-dog-eating champion and Nigerian email scammers and aims to help readers think more productively and creatively,

The Standard & Poor's Dow Jones Indices S&P Indices Versus Active Funds report for 2013 supports the view that investors are better served by index funds rather than actively managed funds.

According to S&P, 55.8 percent of large-cap managers and 68 percent of small-cap managers underperformed their benchmarks in 2013.

"The picture is equally unfavorable when reviewing the performance over the longer-term three- and five-year investment horizons," the report states. "The results show that the majority of the active managers across all the domestic equities categories failed to deliver returns higher than their respective benchmarks."

Although actively managed funds are supposed to perform better in inefficient markets like small-cap or emerging markets, most small-cap managers have consistently underperformed benchmarks over the last five years, according to the study.

Editor's Note: Secret ‘250% Calendar’ Exposed — Free Video

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Don't waste your time or money with professional stock pickers. A monkey with a dartboard will work just as well, according to Freakonomics authors, journalist Stephen Dubner and economist Steven Levitt.
Dubner, Levitt, stock, pick
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2014-30-29
Thursday, 29 May 2014 12:30 PM
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