Before I even begin, here are some findings (I use the CRSP return database which starts January 1, 1926 and runs through December 31, 2010):
- Earning 20%+ returns over very long horizons is for all intent and purposes virtually IMPOSSIBLE (assuming the market experience of the past ~90 years is representative of the future).
- 31.5%+ returns over the 1926 to 2010 period imply that an investor will end up owning over half of the ENTIRE stock market.
- 33%+ returns imply that an investor will end up owning the ENTIRE STOCK MARKET!
- A 40% return will have you owning the entire stock market in ~60 years–not a bad retirement plan!
- A “doable” 21.5% a year implies an investor will own .62241% of the market at the end of 2010. With a $16.4 trillion total market value as of December 31, 2010, this would imply a personal stock portfolio worth $102 billion!!!
- Warren Buffett–and perhaps a very select handful of others–have been able to achieve 20%+ returns over very long time periods. These individuals represent some of the richest people on the planet because of this very phenomenon.
- An investor might have an epic run of 20% returns for 5, 10, maybe even 15, or 20 years, but as an investor’s capital base grows exponentially, the capital base slowly becomes ALL capital, and all capital cannot outperform itself!
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“33%+ returns imply that an investor will end up owning the ENTIRE STOCK MARKET!”
Now dats what I call beating the market
Haha, no doubt!
Forget “winning!”, if I pulled this off, I would just say that I won.
In order to move across the room, you first have to go half way, and there’s an infinite amount of “half way” points so therefore you can never move across the room.
The same can be said about gains in the stock market. In order to own the stock market, you must first get half, and in order to get that, you must get half. But there is an infinite amount of “halfs” so you can never gain money in the stock market. It’s never really yours to own, you are merely a conduit of the money and shares of stock passing them back and forth so that transaction takes place
You’d be richer though if you just started your own central bank and created money out of thin air. That’s how the central bankers became Gods.