[Guide] How to beat the pros at investing!

I know this title sounds like clickbait, but it is not. Not at all. I'm not going to show you some "secret", but rather a well established fact:


Most professional investment fund managers don't "beat the market".

Don't believe me?

According to the spiva scorecard 2019 (they keep track of the active vs passive investing performance), 80.6% of large cap funds failed to outperform the market over a five year period.

If we look at all domestic funds (USA), then 87.76% failed to outperform the market over a 15 year period.

Even if we look at the short term performance (2019), 70% of equity funds underperformed the market (S&P composite 1500).

Sources:

• https://www.spglobal.com/en/researc...-2019-scorecard-active-funds-continued-to-lag

• https://us.spindices.com/spiva/#/reports

• https://www.ifa.com/articles/spiva_-year_2019_active_passive_scorecard/

If you're not a numbers person:
Warren Buffet, one of the most prolific investors of all time, has instructed his wife in the case of his death to invest 90% of her wealth into the market.

Source:

• https://www.ft.com/content/0fdc605a-a53d-11e3-8988-00144feab7de

"But some beat the market right? I could too, couldn't I?"

Yes some do.
The vast majority however doesn't. And those are not people that just reads the news and watch youtube videos or documentaries about the topic.
Those are professionals that manage millions and have access to a team with highly educated people that studied the topic for years. If the majority of those people can't beat the market, I don't think its reasonable to assume you will.

So how do you invest into the market?

We use something called an index fund. Those are basically funds, which invest in a benchmark.
F.ex. The S&P 500 is a benchmark that tracks the performance of the 500 biggest companies in the US.

Now there are companies like vanguard that offer an ETF which invests into the companies in the S&P 500 (called the Vanguard S&P 500, ticker: VOO). They basically buy all the shares in the S&P 500 and emit an ETF on it, which you can buy like a stock.

And the best of all:
ETFs and passive investing in general has very low fees, because there is not a team behind the scenes analyzing the market, the company, the competitors etc. ETFs just invest into a benchmark for the market.

Expected returns
The average return of th S&P 500 (one of many benchmarks or markets you can invest in) f.ex. is about 9.8% yearly. Oh yes, thats not the world, but if you've heard of compound interest then youll realize how powerfull this is:

Let's say you invest 1000 USD at the age of 20 and you cash out when you retire (lets take the age of 65). How much do you think your investment amounts to?
67'159 USD.

Now imagine how your wealth would grow when you invest just 500 USD a month with an average return of 9.8%:
over 4.2 Million. In total you will have invested about 270'000 USD and made over 3.99 Million in interest.

NOTE: Past performance doesn't guarantee future performance. So it could be that the next 15 years only give you a return of 4%.

Markets:
There are not only ETFs for the US market of course. You can also invest into Europe, Asia, Africa etc.
If you want to invest into the world-economy, you can go with the MSCI World.


I apologize if there are any sections that are difficult to understand or read. I don't have the time to polish this thread to perfection. If there is something I said you don't understand, just shoot.

Best Regards
CokeAndCake

How to beat pros at investing? Buy when there's blood on the streets. Example: People who bought at the end of March while everybody was selling are now making tons of money.

The formatting is messed up, trying to fix it.

Is it that easy?

TheVigilante said:

Is it that easy?

Click to expand...

Depends on what you call easy. But if you're questions is wether the evidence suggests that passive investing makes more sense than active investing then the answer is definately yes. However there is not one passive investment. As mentioned above, you can invest into different regions, different sectors, different types of assets. It's all about how much risk you want to take.

Overall: If you're in the stock market, you're most likely better off just throwing you money at an ETF with a good track record.

yakuzacartel said:

How to beat pros at investing? Buy when there's blood on the streets. Example: People who bought at the end of March while everybody was selling are now making tons of money.

Click to expand...

Yeah, this is certainly an approach you can take. But remember. The pros with millions in their accounts, that have access to some of the brightest minds and newest state of the art technology underperform the market by a huge margin.
Knowing this, I think it's foolish to expect being able to outperform them. Yes in the short term you might be able to make a decent amount of money and outperform. But if you look over the span of 10, 20, 30 or 40 years? Most likely not.

If you want to take a look at someone who has consistently beat the market, look at James H. Simmons. He is famous for outperforming the market and has the best track record on wallstreet. He' has generated 66% of profit yearly and takes 27% as fees (leaving investors with an average return of 39% a year). His fund however is private and the only way to invest is if you have either amazing connections (and are amazingly rich ofc) or if you work there.