A good while ago I was reading an article by one of the many market gurus who can show you how to do a lot better than the general market indices. In the article he shared his ten best picks to buy and hold on to. He stressed the fact that he had searched far and wide to come up with these 10 gems and he had every confidence that these were the best.
I wrote the date and the picks down, didn't even bother to write down the name of the author, thinking I would remember who it was. Trouble is, two years have passed and I haven't the faintest idea which of the many semifamous talking heads devised the list. However, I was going through some old papers and stumbled upon it and figured I would see how the list would have performed against the S&P.
Remember these are his ten best. And surely a guy who has a lot of fans and has been around a long time can beat the snot out of the market index, right? Well, of the ten picks he had two big winners. Big winners really juice up a portfolio's performance. Over the time period in question the market was up about 20%. So with two big winners out of ten he has got to be in pretty good shape, right? Well, of the eight remaining six were losers. And the two other winners were not spectacular. I added it all up, factored in an eyeball estimate for the dividends, and found he made about 12% overall in about two years.
That's right, he underperformed the market by a wide margin.
Maybe the lesson to be learned here is that it isn't all that easy to beat the indices. Maybe the lesson is that the writer is probably still around, and has a slew of loyal fans who will tell you how great his picks are. Maybe there is no lesson at all, especially if a person just wants to believe in something rather than his own judgment.
I look at it like this: If this was easy everybody would be doing it and nobody would be working. It requires a combination of talent and skill combined with some hard work to make a living doing it.