Stock picking is an art, whether you are a professional at it or a passive amateur. Money managers look to build the best basket of stocks and assets with the ultimate goal of beating the market, also known as the S&P 500. Instead of following the stocks that the indices track, money managers look to mid-cap and small cap stocks for a greater risk to return ratio with the hopes of the stocks out gaining their larger counterparts in the same industry. Warren Buffett, on the other hand, tells retail investors that an unbeatable strategy to gaining wealth in the stock market is to invest in the SPY S&P 500 index ETF itself.
In the year of 2021, it looks like the S&P 500 has won once again. As the old stock market ideology goes, “A monkey picking stocks will outperform professional stock pickers”, which was proven in a study. According to Morningstar, nearly 85 percent of active US stock funds underperformed the S&P 500 this year, marking an increase from the 64 percent last year. When comparing these funds to mid-cap and small cap indices, they ended up performing well, but the main indices proved to be too much. Stock pickers believed this year that they could find bargains and stocks displaced from their true value after a strong ending to 2020, and this was true until the end of the first quarter of 2021, where large cap stocks took control and never looked back. However, it’s safe to say that a lot of Invstr users outpaced the S&P 500 this year with the number of crazy gains we’ve seen, and the Portfolio Builder has completed this feat too, which is something to keep in mind when brainstorming investments for your portfolio. Did you beat the market this year?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.