Why You Need to Pick the Winners When Investing

Research shows that finding the winners is more important than dodging the losers when it comes to investing

Cherry Reynard 10 June, 2019 | 7:22AM

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The received wisdom is that, for any investment, it is good to protect the downside. If a stock loses 50%, it needs to gain 100% to get back to its original level. But could it be more expensive to miss the winners than hold a few losers in a portfolio?

The long-standing emphasis on the importance of protecting the downside has been rigorously challenged by the team on the four-star rated Baillie Gifford American fund. It cites research from Hendrik Bessembinder, professor at Arizona State University’s W. P. Carey School of Business, showing that stock market returns are concentrated in a few high growth companies. Miss them and you might as just have your cash in the bank.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Cherry Reynard

Cherry Reynard  is a financial journalist writing for Morningstar.co.uk.

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