There’s no particular reason, other than curiosity, for ordinary investors to examine the stock market’s performance more than once or twice a year—plenty of evidence indicates that it’s incredibly difficult to hand-pick stocks or time the market. This finding might bruise some egos, but it’s actually great news. It should free up any time spent scrutinizing the market for more rewarding endeavors. That’s precisely the message the financial media ought to send in turbulent times, when ordinary investors are most tempted to engage in panic-selling—or alternatively, trying to be clairvoyant in timing global-securities markets. The truth is that the same boring index funds that made sense last month, last year, and five years ago still make sense today.
Unfortunately, there’s one huge problem associated with this valuable message: No one would be excited to watch a business-news show or to buy a financial magazine that continually reminded them to simply invest in low-fee index funds. No advertiser is excited about it, either—who would want to advertise stock-market newsletters, commodity futures, or actively-managed mutual funds on programs that constantly remind viewers that these goods and services should be shunned?
Dispensing dicey stock-market advice provides a much better financial model for business media, if not for viewers.
.. This message was that the smart investor is someone who can pick a good stock in a good company that makes good products. This thinking reflected the era, in which many investment experts suggested that smart consumers were capable of recognizing good companies as they encountered them in everyday life. As the renowned investor Peter Lynch famously phrased it, “Invest in what you know.” In my view, such messages are deeply misleading: Ordinary investors are ill-equipped to evaluate the numerous aspects of corporate performance that have nothing to do with the everyday consumer experience.