Episode 155: Why Stock Picking Is So Hard (And What the Data Says About Risk)

The RBA has raised rates again, property owners are weighing whether to sell, and a listener is rebalancing heifers. Against that backdrop, Jacob and Steve go through a risk hierarchy special.

They start with how the industry defines risk (volatility and age-based risk tolerance) and ask whether that definition holds up. From there they work through Bessembinder's research: a tiny share of US stocks has created most of the wealth since 1926, and the odds of consistently picking those winners are very low. They also cover ergodicity and Nassim Taleb's casino example, why a 50% loss needs a 100% gain to recover, how the CAPE ratio and valuations shape how much you put into any market, and why defensive sectors like utilities, healthcare and energy have historically been steadier than growth.

The theme throughout: building knowledge around not losing money, rather than chasing the win.

In this episode:

The RBA rate rise and what it means for property
How the industry defines risk, and why it is questionable
Bessembinder's studies on stock picking
Ergodicity and why the path matters
Sector rotation and defensive sectors
The barbell approach to speculation

This podcast is for informational purposes only and does not constitute financial advice. Total Money Management | AFSL 568642.

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