ETF’S And Funds Verse Investing In Individual Stocks
ETF’S And Funds Verse Investing In Individual Stocks, is not a killer headline like the ones below nor is it a click bate this is the hard truth about those articles.
“Joe Schmo made $1,000,000 buying Tesla stock”
“Retire early buy buying Bitcoin Sherly did it you can to”
“If you’d invested $1,000 in Microsoft in 1990……
Apple was selling at $8.00 and I reccomended it back then here is my latest hot tip!
The Point Of These Headlines
These headlines are either click bate, or not such smart investor advisors. If they were realy that smart why don’t they buy all that they can themselves? These investor advisors cast a wide net saying a lot about a lot of stocks and then claim U predicted it!
Back in 2015 there was a great study from Longboard called The Capitalism Distribution. They found, unsurprisingly, that roughly 80% of the market’s entire gains came from 20% of all stocks from 1989-2015. 80% of stocks had a 0% gain.
Examples for the year 2020 Tesla and Moderna both up over 700%. Combined that with the other tech compainies and of course new highs have been reached on the stock market! Owned anything else read belo/
JP Morgan released a similiar study “The Agony and the Ecstasy – the Risks and Rewards of a Concentrated Stock Investing“. In a study ranging from 1980-2013 they found:
- The median stock underperformed the market with an excess lifetime return of -54%. Simply stated in most cases, a concentrated holder would have been better off investing in an Index etc.
- Two-thirds of all excess returns vs. the Russell 3000 were negative, and for 40% of all stocks, returns were negative in absolute terms.
- Historically, there were some extreme winners: the right tail is ~7% of the universe and includes companies that generated lifetime excess returns more than two standard deviations over the mean.
That little blue block on the right-hand l is your Tesla, Moderna, etc. The rest of the thousands of companies on the stock market are to the left. Meaning, 93% of everything else is not Tesla or Microsoft or whatever story stock you might read about in the latest click bate articles being promoted.
Study the chart will realize betting on one stock is basically betting a loss.
In fact, you have better odds of picking the right spin of the roulette wheel than you do picking the next Tesla (and actually holding onto it through the ups and downs and timing the entry/exit).
My suggestion, invest in companies that you fully and read their finances. I mean when you buy a car you don’t look at the records? Buying stock is taking ownership of part of the company know that you didn’t buy a promoted lemon. Otherwise stick to Index and other funds.
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