Naked Truth Investing: A hot tip on oil stocks!
Brett Arenda, who writes a personal finance column for WSJ.com., has a hot tip for you. Buy shares in the Global Energy iShare.
According to Mr. Arenda, "You're already paying for the gasoline and energy at home. Shouldn't you be pocketing some of the profits as well?"
Here is my hot tip that will boost your retirement savings.
Don't listen to him or to any other stock picker.
The stock market is unpredictable, random and very efficient. All of the news about every stock is public. It is studied by millions of investors every day, poured over by professional analysts and this information is crunched by powerful computers. How likely is it that all of these investors have under-priced Global Energy iShares, or any other stock?
The future price of any stock or fund will be primarily determined by tomorrow's news. Since no one can predict what that news will be, or how it will affect the price of the stock, recommendations to buy or sell a particular stock or fund are no more accurate than than the predictions of psychics or astrologers.
Mr. Arenda's prediction about Global Energy iShare's could be right or wrong, but I don't like his chances. Studies have shown that the managers of mutual funds have a 1 in 36 chance of beating the appropriate index. If anyone could pick stocks, you would think it would be these highly-paid, highly-educated professionals. Yet their stock picking ability is no better than the odds of throwing snake eyes at the craps table.
If you enjoy gambling, you could take a shot at stock picking with a small portion of your hard earned money. But you should understand that you are speculating and not investing.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.