1. Buy and hold broad index funds
2. Throw darts at a board to pick individual stocks
3. Be knowledgeable, do your own research, read financial reports, custom build a portfolio
4. Listen to expert advice (Cramer, anti-Cramer and everything else)
0. Get elected to Congress
I wanted to take a look at this because given stock trades are public you'd think there'd be an ETF to track trades for the speaker of the house, but in reality it seems like people wildly overstate the profitability of their winning trades and understate their losses because "slightly underperforming the S&P 500 (SPY)" doesn't make the same headlines. In the long term, they appear to be no better off than the average portfolio picker.
https://unusualwhales.com/politics
they track "usual whale" trades, large or weird trades, often by well known figures. Congress is an obvious and easy one to track.
However, they're not required to disclose the trades in real-time, so following it closely may not really help and may hurt in the long run, as quick blips pops or runs fizzle out or revert as the market starts to react.
IIRC there is a 3-day or more lag. And that's optional, I think there is a 30 day requirement?
Especially in the world of finance, I don't think you can possibly go on TV, in good faith, and make any recommendation other than "hire and expert" or "invest long term." It's fundamentally too late of someone is telling you about it on TV; could be a great company to invest in but not short term.
And with #3 above #4, you're essentially considering yourself as the top expert. Those should be flipped, and greater care taken to identify and qualify expertise.
Markets are not just random walks, there is edge to be gained with information and that information can be quite expensive to acquire and refine. A fellow would not have the resources to do that.
If every single stock investor bought index funds, investing in stocks would be pointless because it would not reward companies that perform better.
Well they don't, so why discuss meaningless hypotheticals? Yes this advice doesn't make sense in a world where there are no active funds, no wealth managers, where day trading doesn't exist, hedge funds all shut down, there are no quants, no HFT, no one trading derivatives...but until that happens I'm still telling the average person to buy index funds.
Ok, I just wanted you to say this. Your original advice should only be applied to an "average" person.
They will beat out the other investors on this one pick.
Once someone starts winning and getting a better return the money flocks to them and away from the index funds. That then causes index funds to rebalance, which causes those investors looking for a better return to find other stocks, rinse and repeat.
It will never be the case that everyone is investing only in index funds. It would be so easy to beat out everyone else in that scenario.
So in a lot of cases they'll miss out on those hidden gems. And, again, they're not in the hidden gem business, they're in the min-risk, capture broad gains business.
Lots of funds are focused on capital preservation - if the market is down 20% in a year, a funds goal will be to be even (0%) or maybe down slightly like 3-4%.
They may be less focused of being up 20% when the market is up 10% and instead may only be up 8%.
But, sadly, the stock market is a merciless test proctor. You may do all the work you think is necessary, you may research until the cows come home and you may still be wrong because you read things that were biased, you did not look at things in the proper perspective, there was some important discovery somewhere that changed the industry, geopolitics, etc.
So even if you are planning on doing your own research you should be well diversified.
Also, do not listen to experts! The stock market is one of the few fields where "experts" will intentionally try to mislead you. Always try to get primary material, or as close to primary material as possible. And do not fool yourself into thinking that reading a bunch of secondary expert articles, or listening to Cramer or other experts is doing research. That's like hoping to become a paleontologist by watching friends.
Until you realize we're entering uncharted territory as the index funds no longer represent external indices but a huge portion of money flows and are becoming feedback loops.
If your argument is that this feedback loop is distorting the value of the companies index funds invest in, such distortion would impact anyone who buys stock in those companies whether or not they do it through index funds. Therefore, picking and choosing individual stocks doesn't become more attractive even if we know index funds distort the market, unless you only invest in stocks that are not owned by index funds -- good luck with that.