Seeking Alpha is not for mainstream investors

Summary: Seeking Alpha is not for non-professional investors, because investors who try to pick stocks trail the market by 2 percentage points a year on average. There's a better way.

Seeking Alpha is intended for hedge fund and mutual fund managers and other professional investors. Why not for non-professional investors? Because most investors who try to pick stocks and/or time the market tend to do badly, particularly on an after-tax basis. Here is the summary of the first part of A Better Way to Invest, with links to the full chapters that explain the points in greater detail:

  • Stock picking is not attractive as a core investment strategy for non-professional investors: it's extremely hard to beat the market by picking individual stocks and your stock picks may be correlated with your employment risk (Was Peter Lynch Really Right?); and buying and selling individual stocks can lead to poor long term after-tax performance (Your Stock Picks Aren't As Good As They Seem!).
  • Tech stocks attract many individual investors, yet investing in tech stocks is particularly difficult. 5% of tech stocks historically account for 100% of their return, so picking them is challenging and sticking with your winners can lead to a highly concentrated portfolio (The Problem With Tech Stocks).
  • Purchasing individual stocks probably wonít give you adequate diversification. Focusing on stock picking also distracts you from asset allocation, yet most investment performance is attributable to asset allocation rather than stock picking (Did Stock Picking Distract You?).
  • Individuals who try to pick stocks trail the market by about 2 percentage points annually on average (Measuring Stock Pickersí Underperformance). And that excludes taxes, which would likely make the number considerably worse.
  • In theory, you can beat the market with thorough research focused on the areas of greatest information inefficiency (How To Beat the Market). One possibility is small cap stocks, though they have lost much of the attraction they had in early 2003 (Whatever Happened to Tech Uncovered?).
  • But there are two caveats: first, due to the resulting portfolio concentration and risk, picking illiquid stocks is only attractive for a small part of a portfolio (Considering Small Caps). And second, you should only try to pick stocks for a small part of your portfolio if you know you're good at it, ie. if youíve calculated your performance after fees and taxes and found that youíre really capable of beating the market. Many investors, however, never measure their after-tax, after-fees performance, and believe they are great stock pickers when they're not.