We start with some painful truths.
Nearly 85% of active professional money managers fail to beat the stock market. As professionals, you assume these folks are smarter, know more about the markets and have better information tools than the rest of us. Perhaps the aforementioned is true as well, but that doesn't change that eight out of 10 pros still underperform. That should tell you something very important.
If smarter, better-equipped people are underperforming, perhaps a higher IQ or additional resources are not the key to investment success. I wholeheartedly agree. I believe anyone with average intelligence and an understanding of fundamental high school mathematical principles is highly capable of beating Mr. Market, if they also possess the one quality that no degree or advanced training can provide -- patience.
A wonderful chart I saw in USA Today illustrates this. This is the seventh anniversary of the start of the bull market in March 2009. So it's interesting to go back and see what has happened over the past seven years. The chart shows the top 10 stock performers during that time. First place goes to General Growth Properties (GGP), up nearly 7,300%. A $10,000 investment in GGP would be worth over $700,000 over the past seven years. Others on the list include Under Armour (UA, up 2,500%), Netflix (NFLX, 1,650%), and even cable/broadcast giant CBS (CBS, 1,550%). (Under Armour is part of TheStreet's Growth Seeker portfolio.)
Hindsight is fun, but not necessarily useful going forward. Unless we were blessed to own any of the anointed 10 stocks on this list, we all want to know the next 10 best-performing stocks going forward. Sorry, I can't provide that, but what I can provide is a very interesting piece of data with respect to stocks over the past seven years.
While owning the S&P 500 over the past seven years would have netted a very strong 215% return, more than 60% of stocks that have been trading during that time have beaten the S&P, according to USA Today.
Think about this data very carefully. More than six in 10 stocks beat the S&P, an absolutely staggering percentage. The past seven years have been plentiful for individual stock pickers. Yet most still underperformed for a very simple reason: No one today is willing to own a stock for seven years.
Extraordinary brilliance or analysis is not what beats markets. What beats markets is rational behavior. And rational behavior understands that patience is the secret sauce to long-term, market-beating gains.