Hot stocks can make you rich, but they probably won’t

Professor of Finance Hendrik Bessembinder’s study proves diversified, low-cost mutual funds are the way to go.

You may be tempted to invest in individual stocks that are doing well. Before doing so, consider your chances according to Bessembinder’s research.

The New York Times posted this article on May 12, 2017:

A new study by Hendrik Bessembinder, a finance professor at Arizona State University, demonstrates persuasively that while investing in the overall stock market makes sense, the obstacles facing individual stock pickers are formidable.

In a working paper with the provocative title “Do Stocks Outperform Treasury Bills?” Professor Bessembinder found that individual stocks resemble lottery tickets: A very small percentage of winning stocks have done splendidly, but when gains and losses are tallied up over their lifetimes, most stocks haven’t earned any money at all.