For every investor, one wonders what is better picking the market or index or individual stocks. In an article by Jeff Sommer of the New York Times News Service, he examined a study by Hendrik Bessembinder a finance professor at Arizona State University. What he found was most stocks on the stock exchange do not perform well, however 3 to 4% perform very well which lifts the indexes. The 4% included Exxon Mobil, Apple, GE, Microsoft and IBM – they accounted for all the net market returns from 1926 to 2015.

Mr. Bessembinder found the typical stock does not outperform Treasury bills.

The problem is in the 96% there are always some stocks that perform lottery size returns and who does not want to own one of them? Most stocks on the stock exchange are concept or raising money for potential. The potential does not always come, but it can.

Over the years some of the solutions are: if you buy a mutual fund or index fund, the most important aspect is what do they do with losers. In an index fund, the stock exchange typically changes the stocks included in the index a couple of times a year. The winners are put in, the losers come out which is why over time, index funds go up in value.

If you do not have an index fund, always ask what they do with losers? When do they sell? Most of the information is always about buying, but it is the selling which affects your money.

Linking to dividend paying stocks, the prime reason for buying these types of companies is they are profitable. When a company is profitable it will trade at higher multiples and if it is profitable it can pay the dividends. The dividends plus the long-term profitability helps you into the top 4%. The trick for the individual buying stocks is to try to understand when the best companies fall in price and then buy them and watch as they go back to where they belong.

There are more questions than answers, till the next time – to raising questions.