How Can Stock Picking Be Wrong When It Feels So Right?
Exploring the psychology of stock picking and the evidence for better alternatives
The Problem Emerges
The paradox is hard to miss: study after study shows that consistently beating the market through individual stock picking is nearly impossible, even for professionals. Yet many do-it-yourself investors keep trying.
Why? Stock picking feels right. It feels exciting, empowering, even natural. It plays to our sense that if we just apply enough research and intuition, we can outsmart the crowd. It’s the investment equivalent of believing we are “above average.”
Consider the familiar survey finding: up to 80% of drivers rate themselves as above average. That’s statistically impossible, yet it reflects a common human bias. Investors, too, tend to believe they have insights others don’t; that they will be the exception in a market where most fail.
It’s the same logic behind the old Prairie Home Companion introduction to the fictional town of Lake Wobegon, “where all the women are strong, all the men are good looking, and all the children are above average.” It was meant as humour, but it also captures something very human: the tendency to assume that we are the exception to the rule.
Stock picking feels good. But the data show it often leaves portfolios weaker, not stronger.
The Tension Deepens
The Psychological Pull
Several behavioural biases conspire to make stock picking alluring:
- Overconfidence bias: the belief that our personal judgment is sharper than most.
- Illusion of control: the sense that more research, more data, or more intuition can tilt the odds in our favour.
- Availability heuristic: the one great win looms large in memory, while the many small losses quietly fade.
- Entertainment value: Broad index investing may be rational, but it feels boring; stock picking, by contrast, feels like a sport.
The Industry Amplifies It
Investors are not entirely to blame. The industry itself has long encouraged these tendencies.
During my years at a U.S.-based discount broker (an office was here in London, ON), for instance, I remember a so-called “educational” program pitched to account holders. It argued that investors could beat the market by focusing on corners less watched by institutional investors; “inefficient” areas where opportunities supposedly lay hidden. On paper, this sounded logical. In practice, it was more of a sales pitch than a path to reliable outperformance. The real goal was to encourage more trading, not to help investors succeed.
It didn’t help when executives hired into senior roles touted their past success as sales managers outside of the financial services industry. For those of us who cared about supporting DIY investors, this felt tone-deaf. We wanted clients to thrive, not to be nudged toward risky strategies for the sake of revenue.
The Double Trap
Put psychology and industry together, and you have a potent mix: investors drawn to stock picking by their own biases, reinforced by a marketplace that profits from their activity. The result is predictable: portfolios that lag, even as investors feel they are making smart moves.
The Turn
The good news is that there is another way to think about investing success. It isn’t about outsmarting the market; it’s about owning the market.
Broad, low-cost index funds guarantee participation in every winner without needing to guess them in advance. It’s like betting on every horse in the race rather than staking everything on one. The average of the market is, in fact, better than what most participants achieve.
The Release
Contentment as Antidote
Contentment should not be mistaken for complacency. Complacency ignores risks and avoids responsibility. Contentment, by contrast, means aligning with a disciplined plan that gives you the best chance of reaching your goals.
For investors still building their wealth, most without the safety of a defined benefit pension, contentment can sound like a luxury. They need their money to grow. But here’s the paradox:
- Chasing outsized returns through stock picking rarely works.
- A diversified index portfolio, by contrast, steadily captures market-level returns, minus a small fee, and avoids the idiosyncratic risks that come with betting on individual companies.
Stock picking, ironically, breeds more discontent. The restless search for the “next big thing” often ends in underperformance and regret. Indexing reframes the goal: not beating the market but riding with it.
Even strategies that seem safe, such as dividend investing, can mislead. “Getting paid to wait” feels comforting until the payouts are cut in half or stop altogether. Canadian investors were reminded of this when BCE, long seen as a dependable “widows and orphans” stock, cut its dividend. Contentment means acknowledging that no single company, no matter how storied, can provide certainty.
The truth is that “get rich slowly” is not laziness; it is wisdom. It’s the steady compounding of returns that builds lasting wealth.
Beyond Core-and-Explore
Some planners address stock-picking enthusiasm with a “core-and-explore” strategy: for example, keep 90% of assets in an index core, and devote 10% to speculative picks. It can be a compromise, but the math is unforgiving. A large loss on the explore side can wipe out a reasonable gain from the core, and investors who replenish their explore bucket from the core can turn a small experiment into a recurring drain.
There is another kind of exploration available. Instead of speculating with your savings, explore life itself. Travel. Celebrate family milestones. Learn a new skill. These are adventures that enrich rather than erode your financial plan. Exploration reframed this way aligns with contentment: money serving life, not speculation.
The Resolution
Contentment in investing is not about lowering expectations. It’s about aligning your strategy with what actually works. For those still on the road to financial sufficiency, contentment means resisting the false promise of extraordinary returns from stock picking. It means embracing the steady, boring, reliable path of diversified, low-cost investing that steadily carries you toward “enough.”
The deeper reward is psychological. You no longer have to compare yourself with your neighbour’s lucky pick or worry about being out of step with Wall Street. You know your money is quietly working in the background, supporting the life you want to live.
If you want excitement, find it in life itself. Spend on experiences that deepen relationships, broaden horizons, and create memories. These “returns” will outlast any market cycle.
The real win in investing is not bragging rights. It is peace of mind: the assurance that your money is serving your life, not the other way around. That is what true contentment looks like.
This is the 300th blog post for Russ Writes, first published on 2025-09-22.
If you would like to discuss this or other posts, connect on Facebook, Twitter aka X, LinkedIn, Instagram, Mastodon, or Bluesky.
Click here to contact me for an appointment.
Click here and select FinPlan30: Financial Planning in 30 min under Specific Questions for a 30-minute free, no-obligation financial planning conversation.
Click here for a 2-week free trial of the Money Architect Financial Planning platform.
Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.