Everyone was a stock picker when I started in the financial services industry. It was 1985. In those days, no one had heard the term Evidence-Based Investing.
Every morning, we would crowd around a speaker called The Squawk Box and listen to our firm’s analysts make prognostications about stocks, bonds and markets. We had no real computers in today’s sense of the word. Instead, we had Quotron machines that offered basic stock quotes and news stories on a black screen in lime-green type. Resembling a slightly oversized slide viewer box, there were no pictures! There were no e-mails, or Internet or cell phones! Stock research was often limited to reading a multipage Value Line® report.
I know this sounds backward by today’s standards, but that’s the way it was 30 years ago at a major international investment banking firm. Still, we did the best we could to help our clients, using the resources and knowledge of the day.
Times have changed. Technology is now characterized by more devices providing more data than we could ever have dreamed of in 1985. Our appreciation for what it means to offer good investment advice has changed as well – perhaps even more dramatically. Thanks in large part to that same, enhanced technology, our advice has been informed by a growing body of evidence on how capital markets have delivered investment returns over time.
Academic research that now spans decades has concluded that investing calls for a different approach than clever stock picking and fortuitously timed trading. Instead, it involves understanding how markets work, how baskets of different types of securities have different risk-reward tradeoffs, and how those baskets of securities can be combined to help investors reach their goals. The evidence is clear: Markets are expected to work if you give them the time to do so. Diversification is your friend. And a disciplined investment process will improve your odds of success.
Interestingly, today CNBC still uses the term “Squawk Box” as the title for its morning show. It seems that, while the times have changed, many investors are still operating under past assumptions that have since been debunked. I wonder how many people watching Squawk Box realize that the term recalls a time and a mindset that pre-dates e-mail, cell phones, the Internet and Evidence-Based Investing? It’s a term we believe is best spoken of in the past tense.