It’s not uncommon for us to get questions regarding specific investments. Much like any other investor, our clients consume mass media. They watch the news, subscribe to online journals, read articles, and listen to podcasts. This regular consumption of information, understandably, generates questions like these:
To address questions like these, we began a video series titled “The Stock Market Guru”. While the each video starts parodying the hype and prognostication too often found on Wall Street, our goal is simple; debunk baseless myths around investing. We firmly believe that better investment decisions can be reached through a rigorous evidence-based approach grounded in data and decades of academic research. Naturally, this leads to a different perspective on typical investor questions.
While many investors may believe that picking the “right stocks” (at any given point in time), can help you outperform the stock market, evidence suggests this is not the case. In fact, 96% of the stocks in the S&P 500, over the last 90 years, did no better than treasury bills…otherwise known as, “the risk-free rate of return”. No amount of speculation can reasonably be expected to overcome those odds. Chances are today’s hot stocks may not look so great tomorrow. Instead of trying to pick a few winners, we believe it is much wiser to invest broadly in a globally-diversified portfolio of stocks.
Perhaps you want to leave the stock picking to the professionals and hire a mutual fund or ETF manager instead. After all, they have the time and resources and expertise to find the right stocks to buy. Right? If only it were so easy….The reality is that in any one year, more than 70% of active managers fail to outsmart the market. Over longer time periods, the results tend to be even worse. Expertise and resources seem to be no guarantee of success.
While most money managers are unable to beat the market, some do. Perhaps you think the key to success is to find these managers and stick with them. However, top performers rarely stay top performers. For example, five years ago, 70 Mid-Cap managers were top-quartile performers. Five years later…all 70 managers were no longer in the top quartile. 70 “heros” went to “zero.” Beating the market is hard, staying a top performer is even harder. And finding the handful of top performers who can consistently outperform the market is nearly impossible.
There is no magical solution to investing. Buying into temporary speculation, and media-hype almost never work over the long-run.
That’s why we believe that an Evidence-Based approach, grounded in data and academic research, including the insights of 12 Nobel laureates, offers investors the best chance to reap the potential long-term rewards of global markets.
If you want more perspective on these topics—as well as a sendup of Wall Street hype—you can watch all three episodes of the Stock Market Guru here.
About the Author: Kevin Pallotti is our Video Producer for the Symmetry Marketing Group, which provides customized marketing services to help Financial Advisors communicate their value, grow their businesses, and deliver better client experiences. You can learn more at symmetrymarketinggroup.com.
 Arizona State University. Do Stocks Outperform Treasury Bills? Arizona State University. https://wpcarey.asu.edu/department-finance/faculty-research/do-stocks-outperform-treasury-bills
 Meyers, Josh. New report finds almost 80% of active fund managers are falling behind the major indexes. CNBC.com. https://www.cnbc.com/2022/03/27/new-report-finds-almost-80percent-of-active-fund-managers-are-falling-behind.html
 Liu, B., CFA & Sinha, G. (2021). U.S. Persistence Scorecard. S&P Dow Jones Indices. S&P Global. https://www.spglobal.com/spdji/en/documents/spiva/persistence-scorecard-mid-year-2021.pdf
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