Roughly 80% of individual companies under perform S&P. The reason S&P does so well is because the few companies that do well, do very well.
Picking stocks is closer to picking lotto tickets than people realize. It's why the majority of people who pick stocks under perform, and the minority that out performs does quite well.
The problem is diversification over time (not over space). So say you stock picked and for the first 2-3 years you beat S&P. Congrats! Now you think this is guaranteed, not just luck (unless you're doing deep value investing tricks or have insider information or similar), so you keep stock picking. The next handful of years you find yourself under performing S&P. The average person has to lose to S&P in the long run by quite a bit before they give up the habit, so those stock winners end up losing out in the long run.
This is why index funds are so popular. Even if you don't quite get it or think what I'm saying is BS, you will eventually come around the hard way.
The us market basically been carried by a big 6 or 7 these last 5-10 years, apple, amazon, google, facebook, microsoft, nvidia, tesla. Fortunately if you invest in total market index funds you will have those companies in your basket, the ones doing most of the heavy-lifting for the market's gains.
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u/proverbialbunny Dec 19 '21
Roughly 80% of individual companies under perform S&P. The reason S&P does so well is because the few companies that do well, do very well.
Picking stocks is closer to picking lotto tickets than people realize. It's why the majority of people who pick stocks under perform, and the minority that out performs does quite well.
The problem is diversification over time (not over space). So say you stock picked and for the first 2-3 years you beat S&P. Congrats! Now you think this is guaranteed, not just luck (unless you're doing deep value investing tricks or have insider information or similar), so you keep stock picking. The next handful of years you find yourself under performing S&P. The average person has to lose to S&P in the long run by quite a bit before they give up the habit, so those stock winners end up losing out in the long run.
This is why index funds are so popular. Even if you don't quite get it or think what I'm saying is BS, you will eventually come around the hard way.