 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
|
||||
Security Selection
Also known as “stockpicking.” The strategy of investing in certain securities, believing they will outperform the relevant benchmark, and not investing in others, believing they will underperform. Actively managed mutual funds are based on this approach. Numerous academic studies have focused on whether security selection works. They have basically come to the conclusion that while some managers “beat the market” in the short term, over the long term their numbers are minuscule. There is the additional issue of being able to identify these managers in advance, which is not possible to do empirically. Also, security selection entails higher trading and research expenses, which act as another hurdle to overcome in attempting to outperform the market. Other academic studies have shown that security selection on its own is responsible for a very small portion of investor returns (asset allocation accounts for nearly all of it).
Clarity Investments + Planning LLC does not utilize individual security selection.
Return to Glossary