While this sub often recommends (sometimes religiously) to buy into ETFs instead of picking stocks with the argument that “very few people beat the market and statistically, ETFs return more than individual stocks in the long run”, here's an argument in favor of stock picking, at least to some extent.
First, saying that picking stocks fails more often than not carries a stistical bias as the average includes people who select companies they invest in recklessly. If the sample includes people who purchase stocks without prior due diligence, which is a large chunk of retail investors, then failing to beat the market is simply expected. Using the outcome of one behavior and extrapolate it to any and all others leads to flawed conclusions. “How about fund managers who fail too? They do their due diligence.” Some of those funds have invested heavily in companies like Nikola, Rivian and other companies at ridiculous valuations. So to be able to use consistent and relevant data points, we would need subsets of samples excluding speculative and ignorant behaviors.
There are examples of people who beat the market by quite a lot, over extended periods of time. Warren Buffet returned an annual 19.4% for 50 years. Berkshire’s overall gain was 2,744,062% from 1964 to 2019, compared to 19,784% for the S&P500. Munger generated a compound annual return of 19.8% from 1962 to 1975, compared to a 5.0% annual appreciation rate for the Dow. Paul Tudor compounded at 27.2% through July 2010 since he strated his fund in September 1984. The list goes on. Those people tend to share the same investment strategies, mostly based on fundamentals and value.
“Well, those investors are exceptions”. Yes. However, although the rate of success among people who go through a thorough due diligence before picking stocks may not be as high as those famous investors, it's still a goal worth working towards. Let's use extreme comparisons. There are about 1M high-school football players in the US. Less than 7% make it to college, and about 1% of those will get drafted in the NFL. Do you tell kids who love football and dream to be in the NFL to not even try and shoot straight for a forklift driver license because the chances of landing a job would be easier? Would you have told Jeff Bezos, Bill Gates or any other business owner to not put money at risk and just look for a paid job because businesses fail more often than not?
Additionally, investing in stocks allows for risk mitigation that football or opening businesses rarely offer. You can allocate a large chunk of your portfolio to SPY, and still pick stocks. You can also hedge your positions against a downfall with different instruments. You can fine-tune your strategy according to your tolerance to risk. Peter Lynch, for instance, advised to put some money on indices and use the rest to “pick a few stocks that may change your life”.
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