Even An Average Investor Like Me Can Achieve Above Average Return

I see myself as an average investor who makes investments as a form of wealth management without achieving an above-average return. I’m satisfied with that. As I am a stockpicker, I am also aware that passive investing in an ETF would probably be the better option, but investing is also a kind of hobby for me. It is a great pleasure to choose excellent companies and to become their co-owner through investments. I own these companies, and I usually do not sell them anymore.

My approach is average

I also have growth companies in my broadly diversified bond portfolio. Nevertheless, my focus is on dividend stocks, which provide me with a juicy cash flow every month. That is all I aim for with my investments. Maybe one day, I will be able to live on the dividends and achieve the status of financial freedom. Would that change anything for me? No, probably not. I might work a little less as a lawyer and take more time for my stock analysis and the TEV blog. I would never spend the day on the couch, though. That’s why I enjoy the exciting ride and don’t stress myself.

How I became above average

So I am through and through an average investor. All the more amazing I was when I saw my ranking on Tip Ranks. According to the platform, I achieved a clear outperformance of 14.6 percent last year.

With a return of more than 14 percent in one year, I have clearly outperformed the market
Average Investor Return: With a return of more than 14 percent in one year, I have outperformed the market

Just a reminder. During the same period, the S&P 500 has generated a return of only 5 percent, and the Dow Jones is still in the red.  Also, from a historical perspective, I have outperformed all asset classes.

Annual Returns By Asset Classes 1995-2019
Average Investor Return: Annual Returns By Asset Classes 1995-2019

Am I a superior investor?

Clear answer: Yes, I am, and being that I will hide the TEV blog articles behind a paywall, and you have to pay for my wisdom on a monthly subscription basis.

No, of course, I wasn’t serious. But now that I have your attention let me tell you what is behind this outperformance. I think, my “Tip Ranks”-rating is a good example of how easily investors can be fooled by the so-called stock market gurus and analysts.

My ranking on the platform “Tip Ranks” is based on my analyses on Seeking Alpha and the buy or sell recommendations there. Readers who followed my buy and sell recommendations were able to achieve this return. But, and here comes the big disclaimer: All this reflects only a small section of time and is in no way representative.

My private portfolio has performed much more comparable to the S&P 500 last year.  Therefore, I did not achieve an above-average performance with my investments. Likewise, Tip Ranks does not value a neutral rating (corresponds to a “Hold” recommendation). Nor does the platform take all companies I analyzed into account. In my analyses, I also write about companies that I do not have in my portfolio, but which have grown strongly (for example Nvidia or AMD). Frankly, this ranking is completely useless to measure my private investments. It is pure coincidence that I have achieved this performance. If I hadn’t written the one or other bullish Apple or Nvidia analysis, the performance might have been much worse.

Never trust the promotions of other investors/authors

If anyone wants to tell you how you can achieve above-average returns, be suspicious! So many people have already tried to beat the market. In the long run, they always perform worse than their benchmark. If someone wants to tell you something different, they usually have self-interest. Does he want to offer you his service? Does he want to push a stock because he’s invested himself? All this is the rule rather than the exception.

Furthermore, past success is also no guarantee for future profits. For example, since the last major recession, the Great Recession, Warren Buffett’s Berkshire Hathaway has performed significantly worse than the S&P 500, even though Warren Buffett was someone who generated superior returns for decades.

Average Investor Return
S&P 500 vs. Berkshire Hataway since the Great Recession

What you should do

I recommend that you consider the following things if you want to manage your assets yourself and invest in stock markets:

  1. If you invest in individual stocks, be aware that you will most likely not achieve an outperformance. Just ten stocks have accounted for a quarter of the 10-year bull market’s return. So you must have selected exactly these ten companies. Be honest; such a scenario is extremely unlikely.
  2. It’s perfectly okay to be inspired by other investors. However, do not rely entirely on other investors. Do not blindly buy what supposedly successful analysts recommend. Be aware of the risks of your investment before every purchase.
  3. Closely related to this is that you have to carry out comprehensive due diligence of your companies. It is not enough to google the company and read a few analyses.
  4. Don’t buy and sell your stocks back and forth all the time. There may be reasons to want to sell or even have to sell shares, but in the end, you should sell your shares less often than you might think.
  5. You should also have a long-term investment horizon. Invest only money that you don’t need for the next ten or twenty years. It is also possible that a company will crash badly during this time. It may well be worthwhile just to hang on and stay invested.

As always, it’s up to you. It’s your choices, and no matter what you decide,

I wish you the very best!

TEV


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