Looking for stock tips? Here’s a good one: don’t ask an economist.

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It's a question I keep hearing. It comes up over lunch with colleagues, on phone calls with friends, and at family gatherings. Whenever the market rallies, people want to know which stock will be the next multibagger. Whenever it falls, they ask whether it is finally time to buy.

The assumption is understandable. I spent years studying economics, first as a doctoral student and now as a faculty member at IIM Ranchi. Surely, people assume, I must know where markets are headed.

The question has become even more common with the surge in retail participation in equity markets over the past few years. Between 1 April 2020 and 31 March 2026, Indian equities richly rewarded patient investors . A ₹ 100 investment in the Nifty 50 grew to nearly ₹ 270, equivalent to an annualized return of nearly 18%. Such extraordinary wealth creation captured the public’s imagination.

Reflecting this surge in investor interest, the 2026 Annual MF Report published by the Association of Mutual Funds in India (Amfi) shows that mutual fund participation has reached record levels, with 96.4 million investor accounts and annual SIP investments exceeding ₹ 3 trillion.

Yet, despite all this enthusiasm, my answer has never changed. Not because I am unwilling to help, but because there is nothing in an economist’s toolbox that makes us good stock pickers. That said, economists have conducted extensive research to understand how financial markets work. Here are three of the most important lessons:

First, it is difficult to consistently beat the market. Every day, millions of investors analyze company reports, earnings announcements, policy changes, interest rates, global developments, and countless other pieces of information. Through their collective buying and selling decisions, new information is rapidly reflected in stock prices. By the time I finish reading a company’s annual report, thousands of other investors competing for returns have already studied the same information and traded on it. As a result, opportunities to earn superior returns using publicly available information are limited. This idea lies at the heart of what economists call market efficiency.

An important implication of market efficiency is that investors relying solely on publicly available information are unlikely to consistently outperform the market. In practice, many investors are likely to underperform because trading costs and taxes reduce their returns.

Research supports this idea. In their 2000 paper, Brad M. Barber and Terrance Odean showed that, during the period 1991–1996, average households earned an annual return of 16.4%, compared with market returns of 17.9%. The underperformance was even more pronounced among active traders, who earned only 11.4% annually. Moreover, these lower returns were accompanied by higher portfolio turnover and greater volatility. Similar patterns have also been documented among institutional investors.