@ClementsMoney Saturday Critical Concept – Skewness
Welcome to the Saturday Critical Concept. Each Saturday we take something from Jonathan Clements‘ blog Humble Dollar and “militarize” it for you. Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get…free. Here is this week’s critical concept:
SKEWNESS. The most a stock can lose is 100%, but its potential gain is unlimited. Every year, a minority of stocks with huge returns skew the market higher, so most stocks end up trailing the averages. The irony: The big winners make beating the market seem easy—and yet betting on a handful of stocks will likely result in market-lagging performance.
This, my friends, is why you invest in index funds. Don’t search for the needle in the haystack. Own the haystack.