Key insights
- The author's decade-long comparison of active stock picking against simply investing in the S&P 500 revealed only a marginal outperformance, even before accounting for research time. This suggests that for many investors, the perceived value of stock-picking skill may be inflated due to cognitive biases like remembering successes more than failures. The findings question the efficacy of active management for the average investor over the long term.
For the last few weeks I have been going through old portfolios, screenshots, brokerage exports, and notes that I kept since the mid-2010s. I always considered myself a reasonably informed investor. I followed earnings calls, read annual reports, watched market news, and spent far more time researching companies than the average investor.
What surprised me was how difficult it was to outperform a simple S&P 500 strategy over a long period of time. Some of my biggest winners felt obvious in hindsight, but many of them were offset by positions that looked equally promising at the time and ended up underperforming or going nowhere for years.
After accounting for both winners and losers, my annualized return was only slightly ahead of the index, and that's before considering the hundreds of hours spent researching companies and monitoring positions. It made me wonder whether most investors overestimate the value of their stock-picking ability simply because they remember their successes more vividly than their mistakes.
I'm curious how many people here have actually compared their long-term results against a broad index fund and whether the outcome matched their expectations.