We are not fans of stock-picking or trying to time the market. That qualifies as my understatement of the month.

We believe markets are efficient. That means the chances are low that an individual investor can consistently identify underpriced or overpriced stocks, sectors, or countries. You are competing against hundreds of thousands of other investors, and hundreds of billions of dollars, looking at every stock, every day. Most of that investment capital is directed by professionals whose full-time job is investing.

We urge clients and friends not to waste time and money on this pursuit. Instead, we recommend buying low-fee, broadly diversified funds, and spending your time and money on something more productive – whether enjoying a holiday, advancing your career or donating to a non-profit.

Not convinced?

Several weeks ago, we had yet another example of how hard it is to predict the market.

After market close on Aug 28, NVIDIA, the second-largest company on the stock exchange by market value, reported blow-out financial results for its second quarter. They reported revenue up 122% from the previous year, and earnings up 168% from the previous year. NVIDIA’s 122% revenue growth compares to 11% for the average large US company, according to Dimensional Fund Advisors. NVIDIA’s expectations for the third quarter are for continued strong growth. What’s just as impressive: the amounts are huge. Revenue for the quarter just ended was $30 bn, and profit was almost $17 bn. The company’s stock price is up 200x over the last decade. Truly, NVIDIA is a once-in-a-generation story.

Pretty amazing, right? Investors didn’t think so. The next day, NVIDIA’s stock price fell by 6%.

This is not an example of investors being oblivious to the company’s tremendous financial success. Instead, this is an illustration of how stocks are valued. The price of a stock reflects only one thing: future expectations. Investors buy a stock for future capital appreciation and future dividends. The past is irrelevant. NVIDIA’s stock price fell after the earnings announcement because investors had been expecting even better results or better guidance from management about the future.

Investors have been wrong about NVIDIA for 10 years. The vast majority of that time, NVIDIA sellers have been wrong, and buyers have been richly rewarded. We sincerely hope that will continue. But the future is impossible to predict.

The lesson: if you bet on an individual stock, it’s not enough to be right about the company’s future. You also must be right about other investors’ expectations of the company’s future. That is far harder.

Pick stocks at your own peril.