First of all let’s get one thing straight. Stock and shares are one and the same thing. And it would be nice if popular commentators stopped this foolishness and starting talking with a modicum of sense. So why, now we are on the topic, is it that the thousands of professional investors in stock-markets on average fail to do better than the index they are trying to beat (whilst being paid hundreds of thousands of pounds to attempt to do so). I have been a fund manager for over 20 years and if you tune in, I will give you the inside track.
Point one, incentives. Fund managers are coin operated. Pay them to turn up, they will turn up. Pay them to outperform and they will sometimes manage it. How many managers are paid on performance? A crushing minority. Why? Because it is complex and messy and their bosses are more interested in growing assets (ie where is the next big client coming from?) than doing a good job for their current clients. Hard to believe? You could not make it up.
Point two, the law of averages. In most stock-markets professional investors make up the majority of assets in the index. Ergo, the return of the average fund manager becomes the index return – less fees.
Point three, talent. It is unbelievably difficult to pick a portfolio of shares which will consistently do well. The number of people who are capable of doing so is commensurately small. I have known perhaps five.
Can it be done? Yes, if you are Warren Buffett. Can you pick the next Buffett? Unlikely. So stop trying.