When you buy a share of stock, you are purchasing an ownership stake in the underlying company, which represents a claim on the firm’s cash flows, earnings (profits), and dividends. Over short time periods, the stock price often responds significantly to factors such as earnings reports, product or service launches, changes in leadership or regulations, and competitive pressures. This type of risk, known as idiosyncratic risk, is specific to the individual company and can be reduced through diversification. Over the long term, earnings (profits) are a primary reason the stock price goes up.
CITATIONS
Bessembinder, Hendrik (Hank), Which U.S. Stocks Generated the Highest Long-Term Returns? (July 16, 2024). Available at SSRN: https://ssrn.com/abstract=4897069
S&P Dow Jones Indices. (n.d.). SPIVA: Research and insights on active vs. passive investing. Retrieved January 15, 2025, from https://www.spglobal.com/spdji/en/research-insights/spiva/?utm_source=pdf_spiva
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies pro- moted will be successful.
Stock investing includes risks, including fluctuating prices and loss of principal.
All indexes mentioned are unmanaged indexes which cannot be invested into directly.
Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The SPIVA Scorecard is a widely-referenced research piece conducted and published by S&P DJI that compares actively managed funds against their appropriate benchmarks on a semi-annual basis.
Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance
overall returns or outperform a non-diversified portfolio.
Diversification does not protect against market risk. All investing involves risk which you should be prepared to bear.
< COMMENTARY
Client Questions | March 03, 2025
The Challenges of Stock Selection
By Winthrop Wealth
When you buy a share of stock, you are purchasing an ownership stake in the underlying company, which represents a claim on the firm’s cash flows, earnings (profits), and dividends. Over short time periods, the stock price often responds significantly to factors such as earnings reports, product or service launches, changes in leadership or regulations, and competitive pressures. This type of risk, known as idiosyncratic risk, is specific to the individual company and can be reduced through diversification. Over the long term, earnings (profits) are a primary reason the stock price goes up.
DISCLOSURES
CITATIONS
Bessembinder, Hendrik (Hank), Which U.S. Stocks Generated the Highest Long-Term Returns? (July 16, 2024). Available at SSRN: https://ssrn.com/abstract=4897069
S&P Dow Jones Indices. (n.d.). SPIVA: Research and insights on active vs. passive investing. Retrieved January 15, 2025, from https://www.spglobal.com/spdji/en/research-insights/spiva/?utm_source=pdf_spiva
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies pro- moted will be successful.
Stock investing includes risks, including fluctuating prices and loss of principal.
All indexes mentioned are unmanaged indexes which cannot be invested into directly.
Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The SPIVA Scorecard is a widely-referenced research piece conducted and published by S&P DJI that compares actively managed funds against their appropriate benchmarks on a semi-annual basis.
Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance
overall returns or outperform a non-diversified portfolio.
Diversification does not protect against market risk. All investing involves risk which you should be prepared to bear.