I have only a tiny amount in any kind of index funds. I found Motley Fool website around the time I needed to learn about investing and have found their stock picks to be very helpful. I hadn't plotted out my overall performance against the SP500 until I saw some of your graphs. I did a graph this morning in personal capital and wow, looks like I perform quite a bit better than sp500, especially in the last run up. According to the graph I am up about 10% over the SP500 in the last three years.
Here we go again. No. You aren't beating the market. I genuinely understand your confusion. When you're on a website (Motley Fool) whose business model is reliant on people thinking they can beat the market...well, this is what you get. You get flawed comparisons against the "S&P500 Index" that
doesn't include dividends, but
including dividends in your personal performance, tricking people into thinking they're beating the market.
Here's how a REAL S&P500 fund performed from 1/1/2013 - today:
Compared to your performance of 64.89%. Did you spend countless hours researching, planning, and executing trades in your personal account over the last 4 years? Does the knowledge that you would've done better (especially if taxes were involved) by putting it in an index fund and forgetting about it, make you less likely to pick stocks in the future? That's what the Motley Fool is afraid of. That's why they show you these charts. It's incredibly misleading, and in my opinion, unethical.
The biggest problem with individual stock pickers, is they almost universally
simply don't know how to calculate returns.
- Are these returns time-weighted or money-weighted (and do you know the difference)?
- Are you including taxes? (Index funds are very tax-efficient)
- Are you including the cost of your time spent researching stock picks and managing the portfolio?
- Are you even considering the risk-adjusted return?
- If you're doing all of the above, are you then comparing it to a comparable index (so if you own all small-cap stocks, comparing your performance to the small-cap index)?
These questions aren't directed at you HAPPYINAZ, they're directed at everyone. Financial.Velociraptor made the same mistake not too long ago:
http://forum.mrmoneymustache.com/investor-alley/blending-dividend-investing-and-index-investing/msg639877/#msg639877(response starts here)Financial.Velociraptor puts a lot of time into this. He runs a blog dedicated to his active trading, and retired early on a
~10% withdrawal rate. Yet even he was tricked into thinking one of his picks was heavily beating the market by
+6%, but once all the proper adjustments were made he was actually losing by
-3%. He blasted Skyrefuge for insinuating someone else was "blind to reputed under-performance", when he himself was blind. If even people like him are tricked, what chance do you have?
Please understand HAPPYINAZ. I'm not insulting your intelligence. You were tricked. I'm not calling
you out, I'm calling out the various tricks and pitfalls the industry uses against you, and why it's best to simply avoid them all-together.