So we should all buy an index fund and forget about trying to beat the averages?
it's up to each person to decide, isn't it? i think a lot of it depends on your situation and motivations. some people are more concerned with appreciation; others with preservation. in my opinion, on a risk-adjusted basis, it is very difficult to beat a combination of equity and bond index funds for efficient asset allocation.
but that is also not a path to quick riches, since we can hardly expect the indexes to go up 2000% or more in a year, such as many enjoyed in QCOM in 1999. i have been on both sides of the fence, and now have more of a capital preservation emphasis, so i believe the indexing approach is appropriate for me when it comes to equities.
so if your argument against indexes is that they won't give you a quick ten-bagger, i'd say sure, i agree with that. but i don't think a ten-bagger is predictable for any stock at this point, and in any case i would rather shoot for a 1.25 bagger with a risk of a .95 bagger than shoot for a 10-bagger with a risk of a .01 bagger.
at the same time, i find it instructive to take a look at the expected returns from indexes, which i believe are easier to gauge than returns for individual companies. if the expected return from the broad equity market is on the order of 5%, and i can easily get that from bonds, well, my reaction is that i have little motivation to own equities.
it seems your reaction is you'd rather own individual stocks and try to beat paltry equity index returns. it's just a different reaction for a different person in a different situation. hopefully you've considered the downside possibilities as well as the upside ones. |
