Let's say you started with 100K, 50% in an index based ETF and 25% in each of 2 individual stocks. Let's assume one of the stocks does really well and you gain 10% and the other is down 5%. If you sold the stocks now you are at a slight gain and if you invest everything then in the ETF you will likely achieve parity with the market. So my assertion is that if you can every get ahead by say 2%, you can sell and throw everything into the ETF, and you'll be ahead of the market at years end assuming the etf managers are doing their job. Unfortunately I think the emotions that come with investing are the same emotions that impact one's decisions while at a casino. If I went to a casino with $100 and I win $25 more, Very unlikely that I want to go home with a 25% profit. I see the raw $ amount and I'm dissatisfied. I want more and and I lose the $25 and most of the $100. Aren't investing emotions the same? I gambled when Russia invaded Ukraine and I threw my $ into weapons manufacturing, potash, etc cause I thought they would do great. I was ahead of the S&P by 7% or more at this time (due to EQT) and I ended up nose diving to being under the S&P by 3-5%. Now I've gotten myself back up to 2.9% ahead of the index and I have 60% or so into etf VOO. The balance is split between DE and LOW. If I can gain another 2-3% between them and then sell and throw it all into the etf, aren't I guarenteed to be ahead of the s&p at years end? Gtrudeau88
You said it, emotions get in the way. If you can just get in when everybody is crying about the worst recession and stagflation, then stick around for 10yrs, you will come out ahead!
The S&P 500 is an average of 500 companies. ........ Average......... Why would it be nearly impossible to bean an average? Shouldn't half of us beat it, by definition?
Buy low, sell high. NO ONE CAN TIME THE MARKET! That's true. But anyone can tell you when the market is very high, on an extended bull run, or quite low, in an economic slowdown or recession. Buy a bear market, sell a bull market. It you are a skilled and experienced investor, you can do the same with individual quality stocks - sell them when they're way up, buy them back cheaper when they fall... Patience is the key, and yes, emotion is the enemy.
I can time the market. Have done it regularly for 25 years. It has provided us with a nice little boost. I'm retired, now. We have out performed the s&p over the last decade, also.
That is incredible! You are one of a kind, then! As I said in my post, "...anyone can tell you when the market is very high, on an extended bull run, or quite low, in an economic slowdown or recession...". That is, anyone can tell when the market is down, or the market is up. Buy when the market is down = buy low. Sell when the market is up = sell high. That is a common strategy: buy low, sell high. But to be able to actually TIME when the market (or a given investment) is at the very bottom, and buy at that time, right before it turns around and begins to climb, and then to KNOW when the market has reached its peak and sell right then, just before the next downturn.... That is truly an exceptional, perhaps one-of-kind skill. Outperforming the S&P 500 over a decade or more requires great skill (or perhaps in some very rare cases, luck), but there are those who do it, including some in these forums.
There are a few of us. I don't time the market the way you describe. While I have no idea when a stock will peak or when it will be at the lowest trough, I do have a good idea of the odds it will hit any given level both up and down. This is basic statistics. By leaving long term orders open, I connect on lower prices most times. I don't have a lot of experience in selling high, as I don't really sell anything unless I don't like management and then I kick it to the curb. In terms of buying and selling frequently, I think it takes 2 to 6 years to learn that is a losing game. Most people have to be stripped of pretty much all of their wealth before they can learn that lesson. Stay with it, though. You will be able to show the countless millions who came before you and failed how to do it. As for beating the S&P, I have Tesla to thank for that. If I were to remove Tesla, I would come in just below the S&P but still OK.
I think I may have misspoken. I do buy and sell somewhat frequently, but I rarely purchase an investment and sell it soon after purchase. I have purchased some stocks fairly recently that I intend to hold for awhile - and I have sold other stocks that I purchased a good while back. I am not day trader, and rarely a swing trader. And if something occurs where I turn out to be a 'swing trader' because of a short hold period - that probably wasn't my plan! It was either opportunistic - too good of a jump in price not to take profits, lest it come back down - or something soured me on it and I bailed. Most of my stocks and investments I hold long term. "Long term" in my personal investments usually means somewhere between 12-15 months and the rest of my life.
Im all in Tesla and have a little cash for just in case. 248.05 avg. I fully expect to beat the index, no problem. TSLA is a pocket rocket it makes some drastic moves. Very few companies have rewarded longterm shareholders like they have. I'm good, believe I will stay.
I buy frequently, perhaps every 2 to 6 weeks, when reasonable values are available. This is because, even in retirement, we have income streams that we steer into our portfolio. One of those streams is distributions from owned companies but we have other sources of income. Because I have mentioned several occasions when I have had low price buy orders execute, it probably sounds like I am always buying and selling but really I am just buying. I turn on DRIPs either the market is low or we get to a pre-determined upper cash limit. That reduces how frequently I place buy orders but I still move cash into stock, on occasion. In this way, we are not moving or shaking. We just try to operate our portfolio efficiently. In terms of basic statistics, it is not all that difficult to historical volatility and use basic statistics to come up with upper and lower price swings that have a 70% chance of executing (or whatever your threshold is). Please understand, I have not gotten rich quickly and I a have no magic formula. I work hard to find the best companies I can, then I invest in them with the idea of holding forever. Long term for me means my wife will have to deal with them in my estate. Few will make it that far. They end up being bought out, management goes sour, etc. but they are purchased with the idea of holding indefinitely.
Interesting views and points made on this topic. I'll add my 2 cents worth. I think some can achieve it as has been pointed out. It takes a plan, a good plan. One that has been researched and effort has been put into it. The second part that most people struggle with is the long term aspect of it. The longer horizon provides many opportunities for an individual to make mistakes. They tend to want to "chase" things in short term, and fool themselves into thinking they are actually playing the long game. In other words, a person can be an investor for many years and end up with less than desirable results due to constant tinkering, poor research, and bouncing around to the next great thing. All the while, the old SP 500 just keeps a constant steady hand at the wheel. Most fail, because they have a poorly developed plan or they cannot stick with the plan long term. Many think if they design a plan of a few companies and they have success for a week or two or even over a period of months that it must be a proven plan to beat the SP 500. They go on with it, and then the wheels come off the wagon later and panic. What happens then, is they change to something else and start over with another "plan." This cycle continues until one day you realize it is 15 or 20 years down the road and when you make the comparison you realize you have been soundly beaten over this time period. That is a simplistic opinion I have posted, but at the basic level will hold true most of the time long term.
To address the OP, I think the trick to beating or even coming close to the S&P benchmark is to not try to beat or come close to the S&P benchmark. The Heisenberg principle seems to come into play. I monitor the S&P but it does not drive my investing. In the past, I have been OK under-performing the S&P for three years in a row. When I bought our first tranche of Tesla in 2016, it doubled in 8 months. After that, it spent 3 years sinking down below 190 (not much higher than we paid in 2016). I was never motivated to sell, based on S&P, or any other, comparisons. I held it because I believed in the company. Tesla isn't actually worth most of it's valuation. The large majority of Tesla's market cap is speculation on FSD, growth, business expansion into energy, etc. It is entirely conceivable that Tesla would be worth $250 right now, with no splits, if Elon didn't resonate with the Reddit crowd. If that was the case, I would still hold it today and I would be happy with the stock performance. Tesla is a market darling and the price blew up so I sold our stake and moved into something else. Now that I don't own Tesla, it seems likely that we will never out perform the S&P again. Of course, that's what I thought in 2012 and that was an amazing year for us, after 2010-2011 were a break even period. It really is a matter of sticking to our game and it just happens. I fully expect to under-perform the S&P 500 for the next several years, as none of our current companies have the potential for explosive growth. That is fine with me. As long as the distributions keep rolling in, we will be very happy.
I have been beating the SP500 since about 1990. For 32 years now......long term average return. Like TomB16 with his TESLA stock......one of the primary drivers of my long term beat of the SP500 is my purchase of MSFT in 1990 which I held till about 2002 when I sold all shares. The HUGE gains of that purchase for the long term......12 years.....drove my returns way above the SP500 on the medium term and carried through to today. I was also LUCKY enough to identify and invest early in stocks like......SBUX, NKE, COST, HD, and a few others. You will notice that these stocks all have one BIG thing in common......they were all based in the Pacific NW, Seattle area. Even HD which was not based there came to my attention since they were a competitor of Eagle Hardware.....a Seattle (Renton) company. I lived in the Seattle area at the time these companies came to life......and was very aware of them. The other BIG factor that has driven my returns......was the fact that I SOLD OUT all my holdings in about May of 2008 and bought back in about March 2009.....so I sidestepped much of the 2008/2009 near economic collapse. When I went back in in March.....I went all in all at once......very near the bottom. I am NOT a trader....but I went to cash at that time since......for the first time in my life.....I believed that there was a real "possibility" of a worldwide economic collapse. i think it takes some extreme investing events like TomB16 with Tesla or myself as listed above for the average person to beat the SP500 long term.
Personally I dont consider beating the SP500 as a goal.....me personal investing long term goal has always been to average at least 10% per year for the long term. I have been very fortunate to beat that goal. I am satisfied to double my money in about 7.2 years. My secondary......aspirational goal.....is to beat the SP500 annually. I dont actively take any steps to do this. I just rely on my usual long term portfolio. Sometimes I do it other time not so much.
I share your view. In my case, I did not plan or have any concept of Tesla doing a 25x in five years. Clearly, that was a lucky event. But, I did identify Tesla when everyone else was upset by their existence and the idea of electric cars so there was a tiny amount of skill involved. How much of your success with Microsoft do you attribute to luck and how much to skill? Even though it seems like luck, open minded people seem to find the golden geese and invest in them far more often than the grumpy bears. So, perhaps some of it is skill?
Amen, brother. I was a trader in the 80s and early 90s. It took me a while to realize the futility of trading. This difficulty was due in large part to making money like a drug dealer during that time. I happened to get into the car just as it was staged at the lights for a 1/4 mile run. I did not plan to be 18 years old with gainful employment just as the market was starting picking up. I also had no concept of what it would be like when the car blew it's engine and was in the ditch. In the late 90s, someone I profoundly respect told me all you can reasonably expect is 8~10% annual return from the market. As for the GFC, we were not in the market but that was 100% luck. We went all-in on a real estate venture in Canada where the market never collapsed. Zero skill involved, on my part.
As to MSFT and buying in 1990. I was an avid listener to business radio in Seattle while doing my one hour each way commute in the late 1980,s and early 1990. I was very aware of MSFT as a booming local company during that time. I even went out to their headquarters campus in Redmond in early 1990 at night to see what was going on. I liked the number of cars there at night indicating employees working late....I also liked the massive construction taking place......HUGE office buildings.....going up all over the campus. At that time you could drive right into the campus. So my awareness of the company was partly LUCK and partly follow up on what was going on around me. We lived about 3-4 miles from the campus and there were early MSFT executives in our neighborhood. So I had awareness on multiple fronts. As I have said on here in the past......in 1990 I scraped together all of our liquid money...$80,000....and put it ALL into 1000 shares of MSFT. Over time with all the early stock splits that money grew to somewhere in the neighborhood of $3-5MILLION.......which I partly diversified over time into my usual BIG CAP GROWTH portfolio The way I saw it.......they had a license to make money from every computer sold in the WORLD. Apple was not a threat to them at that time. I did not see any significant risk of their operating system being eclipsed at that time since they were tied in with IBM. So some luck, some recognition of what was going on around me....and willingness to see the "probability"......and take a significant risk.
As a few clean-up comments on this topic. My investing goals above have been the same.....as have I posted above..... for at least 40 years now. My investing strategy has ALWAYS been the same as now.....BIG CAP ICONIC GROWTH companies.......the cream of the crop of the USA and world economy. Of course those companies have changed over the decades. Learning about the rule of 72's and compounding.....way back when.......was a MAJOR LIFE MOMENT for me......as was the rule......"pay yourself first". I learned those from "OLD GUYS" way back when......I was amazed.....I had never heard of such things.
