This graphic is very interesting and telling. Let’s put this in perspective. There are currently roughly 8,400 stocks in the US market. If you exclude the Top 10% of performers each year (840 stocks this year), your return suffers 3.4% annually. What this means is that if you go back to 1926 and invest $10,000 in all US stocks and compound annually with no additional investment, you end up with $17.3 million. If you try to pick the best performing stocks (of which there is no data supporting anyone’s ability to do so) and you miss the Top 10% of performers each year, your $10,000 investment only grows to $1.2 million. You miss out on $16 million! If you miss the Top 25% of performers each year, your return drops to -1% per year. I don’t think the math is needed for that one. Stock picking is a risky proposition. I wouldn’t try it.

This graphic is very interesting and telling. Let’s put this in perspective. There are currently roughly 8,400 stocks in the US market. If you exclude the Top 10% of performers each year (840 stocks this year), your return suffers 3.4% annually.

What this means is that if you go back to 1926 and invest $10,000 in all US stocks and compound annually with no additional investment, you end up with $17.3 million. If you try to pick the best performing stocks (of which there is no data supporting anyone’s ability to do so) and you miss the Top 10% of performers each year, your $10,000 investment only grows to $1.2 million. You miss out on $16 million! If you miss the Top 25% of performers each year, your return drops to -1% per year. I don’t think the math is needed for that one. Stock picking is a risky proposition. I wouldn’t try it.

Posted at 10:18 AM (2 years ago) | Permalink