Investors are confronted with two choices: They can capture market returns (minus low transaction costs) with 100% certainty, or they can pursue the quest for higher returns, with the probability that they will underperform the markets.

You would think that the choice would be clear. Yet the majority of investors opt to ignore the data and try to “beat the markets.”

http://www.huffingtonpost.com/dan-solin/smart-advice-for-the-huff_b_95807.html

This week, I deal with several methods frequently used by investors to try to accomplish this elusive goal. None of them work.

We find patterns fast. Two accurate calls will make you expect — and bet on — a third. Three is a “trend.” Studies show that people seeking new money managers tend to hire a firm after a three-year hot streak and fire one after a three-year cold streak (even though both of these streaks are probably about to change).

The advice I’ve come to believe is that trying to beat the market in the short term, by picking “winning” stocks, is a fool’s game. It’s really no different, substantively, from going into a casino in Vegas or Atlantic City and betting on roulette or slots. Over the long term, with a well-balanced portfolio, you can make money on the market, because the basic trend in capitalism is toward increased wealth and economic growth. Anything else is no more rational than betting in any other game where the odds are against you.

I don’t throw my money away on fast-obsolescent consumer goods, just on quickly worthless stocks.

Once upon a time, stock was a share in a company, a claim on their assets. With the new bankruptcy rules, stocks are just trading cards with the name of a company on them. They cease having any real value after the IPO.

Yet, I still casually play the market.