The results are in. The benchmark I created -- The Solin Random Stock Index (SRSI) -- to see if an index of stocks picked somewhat arbitrarily could outperform portfolios created by brokers and investment advisers, would have clobbered the competition in 2009. If it had been in existence then, that is. I described the SRSI in a recent blog post where I detailed my "methodology." All I did was take the letters of my last name and pick the first two U.S.-listed stocks that appeared on the DailyFinance search engine. Stocks included Sprint Nextel (S), Oracle (ORCL), Loews (L)...you get the picture. To see the full list of stocks, click here.Here's how these ten randomly selected stocks performed in 2009:
The SRSI gained: 106.19%
The S&P 500 index gained: 26.46%
The DJIA Index gained: 22.68%
Here's the real stunner:
The SRSI ranked 22 out of 14,132 mutual funds listed in the Morningstar database of domestic stock funds. That placed it in the top 1%!
Should you run out and buy the stocks in the SRSI? Absolutely not. Remember, past performance is not an indication of future performance.
However, there is a valuable lesson here. If a fund manager had posted these returns, you would be reading about the emergence of a new stock-picking guru. Money would flood into the fund. Can you imagine the interviews where the manager explained his "expertise"? Talk about "alpha." This index has it in spades.
Wall Street's specialty is in making luck seem like skill. The SRSI performance was obviously luck.
Your financial future is too important to place in the hands of brokers and advisers who don't know (or care about) the difference. Here's a far better plan: Buy a globally diversified portfolio of low-cost index funds in an asset allocation suitable for your investment objectives and tolerance for risk.
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