What Did the Father of Investment Analysis Conclude about Stock-Picking?

Benjamin Graham was Warren Buffett's teacher and mentor. Toward the end of his life, his outlook changed in a surprising way.

Benjamin Graham authored two of the first books on investment analysis: Security Analysis, together with his colleague David Dodd, and The Intelligent Investor. As a result, he is regarded as the father of modern investment analysis. He was also Warren Buffett’s teacher and mentor and gave Buffett his first job in the investment industry, teaching him how to pick stocks.

But near the end of his life, though, Graham made this surprising statement in an interview. He was asked whether he still believed in stock-picking, and this is how he responded:

"In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook 'Graham and Dodd' was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost."

Graham made this statement in 1976. I believe it is even more true today. Yes, you can make a fortune if you pick the right stocks, but for most investors, most of the time, I believe index funds are the better choice.