One of the biggest mistakes investors make is foolishly thinking they can outperform the market through buying individual stocks. It’s hard enough to beat the market in any given year, but to do it consistently over long periods of time is nearly impossible.
But if anyone could do it, surely it would be professional investors who buy and sell stocks for a living, right? Today I want to look at five well known “Best Stocks of 2016” lists and see how they actually performed compared to the S&P 500 last year.
For comparison, we’ll use the Vanguard S&P 500 index fund VOO.
VOO 2016 Total Return: 11.96%
Total Return: 0.03%
TIME magazine wrangled together a panel of four professional investment firms and asked each of them which three stocks they recommended for 2016. This list of 12 stocks returned a pitiful 0.03% last year.
Total Return: 2.17%
Eddy Elfenbein, a portfolio manager and writer at Crossing Wall Street, releases his annual buy list of stocks at the start of each year. I’m actually a frequent reader of Eddy and enjoy reading his thoughts on the market, but unfortunately last year his stock choices fared poorly. His portfolio returned 2.17%.
Total Return: 7.18%
Forbes writer Ky Trang Ho’s list of 2016 stocks managed a 7.18% return. Decent, but still considerably less than VOO.
Total Return: 9.52%
CNBC recruited Farr, Miller & Washington, an investment manager, to put together a list of 10 stocks that would surely beat the market in 2016. This group of stocks put up a valiant fight, but still under-performed the market with a 9.52% total return.
Total Return: 9.84%
The last contender is Morgan Stanley, the global powerhouse financial services firm. They gathered together a team of investment professionals to create a list of 20 favorite stocks for 2016. The list had some big names including Amazon, Starbucks, Costco, and Honeywell, but it still under-performed the S&P 500 with a total return of 9.84%.
Index Funds for the Win
So what’s the moral of the story? It’s incredibly difficult to outperform index funds. Even the investment professionals who get paid to find stocks that will outperform the market can’t do it. It’s a losing game.
The average investor who would have simply thrown all their money into a simple S&P 500 index fund would have handily outperformed most professional investment teams last year.
Cheers to index fund investing 🙂
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