“Stock picking is for fun. Asset allocation is for making money over the long haul.” – Barry Ritholtz

This is why investors love to pick stocks:

This is list contains the top performing stocks in the S&P 500 since the market bottomed in March of 2009 courtesy of Bespoke Investment Group.

While the entire market has more than doubled, many of these stocks have hit Peter Lynch’s 10-bagger status (a gain of 1,000% or more).

Just as we all dream of someday winning the lottery . investors would love to be able to pick stocks with these kinds of returns.

If you could have purchased the top performing stock, REGN, on March 9, 2009 and lived in a cave with no Internet access to be able to check the daily price you would have turned $10,000 into nearly $230,000.  Not bad.

Unfortunately it’s nearly impossible to ignore the markets for that amount of time. Of course, looking back now you are probably saying to yourself that you would have been able to stick with these 10 baggers as they ran up from the bottom.

This is what Daniel Kahneman calls the possibility effect, which causes us to weight highly unlikely outcomes much more than they should be.

In reality, REGN didn’t go straight up in price. I looked back at the REGN price chart and found that the stock had losses along the way of -29.8%, -23.8%, -13.1% and -15.8%.

Would you have been able to hold strong after losing -30% of your investment?

Would you have been able to buy at the bottom when everyone was predicting a double dip recession during the market’s snapback rally?

Could you have ignored the flash crash? The US debt downgrade? The European debt crisis?

These are the factors we don’t consider when buying an individual stock. Big gains look wonderful after the fact but you don’t see how the sausage gets made to obtain those gains. You simply see the end result.

It’s also why most investors are better off leaving the stock picking to the pros (and most of them aren’t much better).

Or if you are going to make some of your own picks, have a plan in place ahead of time, diversify your positions and plan on being wrong every once and a while.

Don’t plan on it finding too many lottery ticket stocks unless you are able to be a long term investor. And even then you’ll need some luck to hit it big.