Many of today’s investors are familiar with the high-achieving FAANG stocks. For the majority of investors, it’d be a big mistake to ignore the FAANG stocks just because lots of people invest in them. These stocks - comprised of Facebook, Amazon, Apple, Netflix, and Google – are the driving force behind the current S&P 500 gains.
Today’s investors are wildly enthusiastic about America’s all-conquering technology companies, such as Google, Apple, Facebook, and Amazon. These companies are either shielded from the threat of takeover by special shareholder structures or, in the case of Amazon, have persuaded investors that long-term growth is more important than short-term profits. Other countries only wish they could create technology giants with the same reach as one of America’s titans.
In our previous blogs, we have provided theoretical and empirical evidence that broad-based indices outperform most active managers (see here, here and here). In this blog, we argue that the average investor in the U.S. significantly underperforms broad-based indices. Dalbar’s (2017 QAIB Report) analysis shows that the 30-year annualized S&P 500 return was 10.16% while the 30-year annualized return for the average S&P500 investor was only 3.98% -- a gap of 6.18% annualized.
Did you know that 4-week Treasury Bills are paying 1.95% as of today (September 10, 2018)? Would you rather keep your cash on deposit at your bank and let the bank lend your money out, while they pay you interest rates as low as 0.01%? Or would you rather invest that cash in a much safer place and get more interest? The answer is simple, let us show you!
Because of many factors including that it is tough to disentangle luck from skill, and overconfidence.
“Sheer luck is as good as past returns in predicting future performance” from the Economist