A new working paper argues that stock-picking is on the long-term decline to much lower levels:
We find that though there is more stock picking in emerging markets than in developed countries, it is declining everywhere. In the United States, for example, stock picking has secularly declined from a high of 60% in the 1960s to a low of 24% in the 2000s. Finally, as markets cannot be efficient if everyone believes that they are efficient and, therefore, do no stock picking – the Grossman and Stiglitz (1980) paradox – we ask what is the long-run steady state fraction of stock pickers? We develop a simple theoretical model, and calibrate this model to the United States economy to conclude that stock picking will eventually settle at 11% of trading volume in the United States.
While I think that the authors are optimists and there will always be more stock-pickers out there than is rational, it is an interesting conclusion, one with important implications for discount brokerages and the like.