Most investors understand that they are unlikely to beat the major stock market indexes.
Still, many investors remain convinced that they can pick better stocks than everyone else.
Mebane Faber points us to some eye-opening statistics from a recent study conducted by Longboard Asset Management who took a close look at the returns of 3,000 stocks from 1983 to 2007. They show how the odds are stacked against the investor who strays from an indexing strategy. From Faber:
- 39% of stocks were unprofitable investments.
- 19% of stocks lost at least 75% of their value.
- 64% of stocks underperformed the index.
- 25% of stocks were responsible for all the market’s gains.
In other words, chances are you’re picking the wrong stocks.
Faber points us to a chart from BlackRock, which we’ve seen before. And it’s a chart we just can’t get enough of.
Not only does the average investor underperform the stock market, he can’t even keep up with inflation.
“Amidst difficult financial times, emotional instincts often drive investors to take actions that make no rational sense but make perfect emotional sense,” wrote BlackRock. “Psychological factors such as fear often translate into poor timing of buys and sells.”
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