I know this goes against everything you’ve ever been told by the finance industry.
That’s because they make a fortune off of fees from funds. Even index funds, which are the Walmarts or Costcos of investing. They still charge, and while they may offer everyday low prices, you also get just below-average returns.
Now with stock transaction fees at zero on nearly every retail brokerage platform, obviously the financial industry doesn’t make any money from stock pickers.
But you can beat the S&P.
I am sure that many reading this don’t believe me and if I shared my S&P beating returns you would just scoff and say it was all luck.
Even I thought the same thing at the end of my first year of market-beating returns. It wasn’t unit my second year of blowout returns I became convinced that maybe there was at least some skill involved. So I started to collect annual returns from different investors that post them publicly and archived them all into a document, here is what I found.
Examples of investors who beat the S&P
This google sheet contains annual returns I have collected from various investors I follow on message boards, social media, etc., next to the returns from the S&P. The first tab lists the average annual returns for three investors that have just under 15 years of data from 2007.
In that period here is the average overall performance:
The S&P 500: 11.28%
The Magellan Fund: 12.23%
Motley Fool 100 ETF: 15.31%
Message Board Legend: 41.79%
You can see that the Magellan fund, a giant billion-dollar mutual fund, was still able to generate returns just slightly better than the S&P. But the other two examples did much better.
So it’s definitely possible to consistently beat the S&P. Even Magellan beat the S&P over a 15 year period. Which Warren Buffet said was nearly impossible.
Beating the S&P by over 100%? Yes that is also possible
On the second tab, things start to get really interesting.
That is where I collected self-reported returns from a wide range of investors who share them publicly. They are all investors with a reputation and a following. In my opinion, the returns are not fake. There is one exception, the example from Quora, those return looks believable, but I have no idea if they are real or not.
What matters is all of them beat the S&P, and most did it by a huge margin.
The average annual returns from talented retail investors range from a low of 38% to an incredible 135% blowing away the indexes and the professionals.
Here are some examples of average annual returns from the sheet:
One popular Motley Fool writer averaged: 30.30%
Seeking Alpha Quant portfolio: 28.58%
I anonymized top retail investors (to protect their privacy) I follow:
The Disciple: 88.74%
The Enthusiast: 97.98%
The Devotee: 80.13%
I know what you’re thinking. Yes, a lot of these are unaudited and could be fake, but the Seeking Alpha Quant portfolio has returned 28.58% on average for the past 11 years. That isn’t fake.
Stock picking works, at least for some
If your goal is to simply beat an index, and reduce exposure to fees, it’s clearly possible to do it consistently with stock picking.
So how does one go about picking the right stocks?
That’s a great question and it’s what I explore every month on my Substack. Subscribe and follow along as I examine how to beat the S&P by finding the point of highest leverage—everything else is noise.