What is Cooler

A cooler is a slang term used to describe someone considered to have bad luck with stock picking and who, in the process, transfers that luck to others. Coolers are usually blamed for the poor performance of a stock after they have either purchased or recommended those shares.

BREAKING DOWN Cooler

Cooler as a term has been used to describe individuals who are perceived to have bad luck, and who transfer that bad luck to others. Some superstitious investors believe that equities tend to perform poorly once purchased by a cooler, and that performance rebounds when the cooler sells their shares. Many television and digital media analysts have been referred to as coolers following the poor performances of companies to which they had previously given positive ratings.

Market participants, especially those said to be coolers, know that stock picking can be difficult. By definition, a stock pick is when an analyst or investor uses a systematic form of analysis to determine that a particular stock will make a good investment and, therefore, should be added to their portfolio. This is also known as active management. Active management is the use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund's portfolio. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold or sell.

Active management seeks to produce better returns than those of passively managed index funds. For example, a large cap stock fund manager attempts to beat the performance of the Standard & Poor's 500 Index. Unfortunately, for a large majority of active managers, this has been difficult to achieve. This scenario is simply a reflection of how hard it is, no matter how talented the manager, to beat the market. Actively managed funds typically have higher fees than passively managed funds.

Conversely, with passive management, an investor buys an exchange-traded fund (ETF) or a mutual fund and will automatically be invested in the underlying basket of stocks that ETF or mutual fund invests in. These baskets of stocks are usually based on an index , such as the S&P 500 Index, or a sector, such as health care.

Coolers and Risk

Any type of investment has risk, but especially stocks because there is no foolproof way to know how a stock will perform. However, by analyzing available information, an investor may be able to get a better sense of future stock prices than by relying on guesswork. Since forecasting is not an exact science, an investor or analyst who uses any forecasting technique should include a margin of error in the calculations.