Picking stocks? You're not the only one with a green eyeshade

— -- Q: I've learned how to read the fundamentals, including earnings per share, price-to-earnings, return on equity and the stock price chart. But I'm still losing money. How are you supposed to research stocks anyway?

A: We've all been taught that the harder you work, the richer the rewards.

In school, usually those who put in the time and do their homework get better grades. Those who work at their swing usually improve in golf. And people with a great work ethic are frequently rewarded with promotions.

But when it comes to investing, extra work doesn't always reap greater rewards. It almost seems unfair. It's one of the frustrations of investing.

Remember that you're not the only one checking all the financial ratios. You're up against hedge fund managers, mutual funds and other private investors.They are all crunching the numbers and trying to find stocks that are too expensive or too cheap.

And that's the paradox. With so many other people analyzing stocks, and making bets in the stock market, the prices of stocks reflect the results of all this research. In other words, the market "prices in" all the facts that are out there.

That means, for research to pay off, you must correctly determine whether the collective wisdom is wrong. This is difficult because its requires understanding what the market is pricing in and whether or not the future will be different than that expectation. There are also short-term swings in stock prices. All that's why, as you've probably noticed, the vast majority of investors who try to beat the market fail.

Does that mean taking the time to study the financials is a waste of time? Absolutely not. It's always beneficial to understand how companies operate and make money. It's like studying civics so you can be an informed voter. And you might see something in a company's financial statements that concerns you, such as too much debt, that's a reason to sell.

But you need to be realistic about how much you can profit from understanding the financial statements. If you think you have the skill to better foresee a company's future revenue and earnings than the market, then by all means, stick with it. Otherwise, you might be a good candidate for simply buying into a diversified basket of stocks and bonds. That way you can hold on and let other investors do all the work.