Why Everyone Is Making More Money With Stocks Than You And Why You Could Still Be Successful In The Long Term

Do you know this feeling? Everywhere on the Internet, at work, in the subway, people are currently talking about how much money they have made with stocks in the last few months. Meanwhile, you think about your portfolio, which has performed quite well but remains far from having 500 percent or even 1000 percent gainers. So why is everyone making more money with stocks than me or you? Well, let’s look closely here. There is a lot to suggest that you will still be successful in the long run, even if you think otherwise when you see the other investors’ results. 

Do not be fooled by the numbers

What do I mean by not being confused or even fooled by numbers? Numbers are numbers, aren’t they? Not really, as always in life, everything is relative. There is no black and white. And many of the legendary stories about other investors’ stock gains quickly vanish into thin air when you take a closer look at the numbers.

Do not confuse book profits with real profits

First of all, you should not confuse book profits with real profits. Book profits can go as fast as they come. Especially in bubble-like share price trends, it isn’t easy to find the right exit and secure profits. Anyone who brags about their book profits is by no means sure that they will end up with those book profits as cash in their account.

Just take Keith Patrick Gill as an example. He is also known as DeepFuckingValue/Roaring Kitty, who played a not so unimportant role in the GameStop Short Squeeze Drama at the beginning of 2021. Keith Patrick Gill saw book losses of USD 15 million in just one day. So yeah, there might be people who are making more money with stocks than you do, and that in a short time, that doesn’t mean necessarily that they see those gains as cash in their bank accounts.

Do not confuse the percentage gains with the absolute (book) profit

And then there are the people who brag that they are already 2000 percent up. While I am calculating how many thousands of USD/EUR in dividends they could get by buying shares of 3M with their profits, they then announce that they want to double their 200 USD/EUR stake once again. In the end, they had invested only 200 USD/EUR, which has now grown to an impressive 4000 USD/EUR, but that is not an amount that should make you jealous. It’s a gamble that paid off. Cool thing.

If you have a heavy portfolio, your daily fluctuations can be far above these amounts. Is that a reason for you to walk down the street and show off? Certainly not. So if you’re in the stock markets for the long haul, your 10 percent gain with solid and conservative stocks may be worth more in absolute terms than a 2000 percent gain with a gambler who speculates with small amounts.

Don’t confuse “timing the market” with “time in the market”

We must always be aware that short-term (book) gains, whether ours or others are in the end a matter of luck of the right timing. Timing the market correctly is impossible in the long run. As I said before:

Over the long term, it is impossible to predict the exact course of the stock markets. It is, therefore, possible that investors will miss the best days, and then their returns will be quite poor. In most cases, such investors then perform worse than the broader market.

After all, in the end, time is of the essence for most of our returns. The reason for this is the compound interest effect. Below you see the results of an investor who invests 10,000 USD/EUR once and keeps the shares in his/her depot. If this investor earns a 10 percent return per year, then after one year, he will have 11,000 USD/EUR. And now the magic happens.

In the second year, he gets another 10 percent on the 11,000 USD/EUR. But this time, it is already 1100 USD/EUR instead of 1000 USD/EUR as in the first year. And so the returns accumulate year after year. After 50 years, the investor has more than 1 million USD/EUR without lifting a finger.

Compound interest effect
Compound interest effect, 10 percent return p.a. for 50 years with an initial investment of 10,000 USD/EUR 

Of course, you should keep the following things in mind here:

  • You probably won’t get an annual return of 10 percent.
  • You need to factor in the impact of inflation, which nibbles away at your profits and reduces their purchasing power.
  • In the end, you can expect a historical average return of between 5-7 percent.

Therefore, the above picture is primarily intended to show you the power of the compound interest effect, which always works, whether with annual gains of 10 percent or only with 6 percent. Furthermore, we will see in a moment how you can boost the return even with a yearly return of 6 percent. But even just this 6 percent on a one-time investment, with the help of the compound interest effect, adds up to a nice sum in the end. And that’s precisely the point. We want to let time work for us and not try to find the exact moment for the best investment.

Compound interest effect, 6 percent return p.a. for 50 years with an initial investment of 10,000 USD/EUR
Compound interest effect, 6 percent return p.a. for 50 years with an initial investment of 10,000 USD/EUR

Be aware of recency bias

Do you remember the 10 percent market decline in 2015? Or 2018? Those were turbulent times, I can tell you that. Between October and December, the S&P 500 lost 20 percent. Crash prophets had already started to proudly count their gold nuggets and predicted for the 10th time the collapse of the financial system since 2007. CNN wrote in big letters “2018 was the worst for stocks in 10 years“. Today, the events are no more than a footnote in the S&P 500’s history.

The phenomenon that we tend to perceive these events differently today than we did back then is called “recency bias.” Our brain puts much more importance on current events than on historical ones. That may be an advantage from an evolutionary point of view. The decisive factor for my survival is the hunger I have now and not my cold from five years ago.

Conversely, we should be aware that the events we describe as dramatic today will be seen quite differently five years from now. That’s why I’m not worried about an underperformance today. It’s just a small time frame. In five years, I won’t remember this hassle. So why should I bother today?

The lack of evidence of losers is not evidencing that there are no losers

When you see all the people who seem to be making more money than you in stocks, don’t overlook the losers. What do you mean, they don’t exist? Of course, they exist. Just because they don’t brag about their losses doesn’t mean they don’t exist. Don’t confuse the lack of proof of existence with evidence of non-existence. When the real estate bubble burst, when the dot com bubble burst, during every bubble investors bought just before the peak. Then, when everyone was pushing for the exit, there were always those who didn’t make it there or reached it too late. If you speculate and take high risk, you can still be one of those losers.

Understanding our approach of investing

My readers and I share the same way of investing. Not everyone likes that. That’s okay. As I will explain below, many strategies work for different people. If we want the simplest possible way to gain an average performance, we will all invest in global market ETFs. But we don’t, because we all have different goals and strategies to achieve our goals. Besides, investing is not a competition. Everyone has to choose the strategy they feel happy with.

Our fundamental view

When we see other investors with their fat profits, we have to think of our approach. We are not looking for the path of quick wealth. We don’t do that because we don’t want fast money. But we believe that it is not possible to build this wealth quickly and without risk. That is why we have a fundamental approach focused on the long-term quality of our investments. When I buy shares in a company, it’s because I want to become an owner. I don’t bet on being able to sell the share to another investor at a higher price. I want to become the owner of a good business. Period.

Our quantitative approach – making more money by using the compound interest effect

Besides that, I would like to become the owner of many companies. Therefore, I buy shares of many companies. And I don’t buy them only once, but I buy them whenever I have free money, which increases the base of my capital and the leverage of the compound interest effect.

The mistake of not leveraging the compound effect

It is, therefore, a mistake not to use leverage. And this is precisely what many investors do when they realize their first high profits. They don’t use the profits to increase leverage but use them to buy cars, TVs, or other things. In doing so, they lose this leverage.

What is instead the better way, in the long run, is to increase the leverage by continually putting new capital to work for us. Above, you have seen a graph of how a one-time investment develops over 50 years with an annual return of 6 percent. In the end, our one-time investment of 10,000 EUR/USD had grown to an amount of over 180,000 EUR/USD.

Now imagine adding 4,000 EUR/USD per year to that over the 50 years. Thus, after 50 years, we would have invested capital amounting to 200,000 USD/EUR in addition to our initial investment of 10,000 USD/EUR.  The compound effect has increased this amount to over 1.3 million EUR/USD.

Compound interest effect 6 percent return p.a. for 50 years with an initial investment of 10,000 USDEUR + 4,000 USDEUR p.a.
Compound interest effect, 6 percent return p.a. for 50 years with an initial investment of 10,000 USDEUR + 4,000 USDEUR p.a.

This performance shows you the following:

  • Even if you partially underperform compared to other investors, the long-term approach is crucial. The most significant gains come from the compound interest effect, which only unfolds its effect after years or decades.
  • Besides, a further boost will come if we continue to invest capital in excellent and profitable companies. We lose this leverage when we consume capital or even take profits to buy expensive luxury goods, etc.

The difference between always having to be right and being allowed to be wrong

Investors with a strong outperformance often use aggressive strategies as well. The problem, however, is that as opportunities increase, so do the risks. That is simply a fact. This idea is the basis of the considerations presented in this section. My thesis is that someone with a high overall risk should rather not be wrong too often, while someone with lower risk is allowed to be wrong here and there. Let’s go into some detail.

Every stock picker makes mistakes

Every stock picker who invests in stock markets for a few years has already made mistakes, and anyone who says otherwise is lying. We have to acknowledge that we are not perfect and certainly do not know the future. Accordingly, misconceptions and mistakes are entirely normal and cannot be prevented.

Warren Buffett was completely wrong in his assessment of Amazon or Apple. His investment in IBM was also rather unfortunate. These things happen to the best of us. Bill Ackmann, for example, completely miscalculated his investment in the pharmaceutical company Valeant and made a loss of more than 3 billion USD with money that did not even belong to him but to the investors in his hedge fund Pershing Square Capital.

We are allowed to do things that are not always the most right decisions

If mistakes happen to even the best investors on this planet, then we will make them too. However, the key to long-term success is to limit the exposure of one’s assets to the risk of an ultimate total loss. Regardless of what such an approach looks like in detail, the advantage of this is that mistakes we make do not have far-reaching impacts on all our assets.

We diversify. That allows us to be wrong and not always to make the very best decisions. We didn’t put all our assets into Bitcoins or Apple or Amazon shares decades ago. That may hurt now when we see the profits of other investors.

My point here is: Even though I just called these decisions wrong or mistakes, they are not mistakes in a strict sense, but rather natural and inevitable in stock picking. They have not been the very best decisions (“very best decisions” is the better fitting term from my point of view). And it’s okay that we made such wrong/not the very best decisions. But what I call real mistakes, I’ll show you below.

The decisive factor besides time – we have to avoid making the really wrong decisions

So it may hurt when we see other investor’s investment gains. But we can not overlook the underlying risk of such investment decisions. When we make particularly risky investments for our assets, we are not allowed to be wrong very often. From my point of view, a wrong decision is mainly the following: irreversible losses.

Irreversible losses are the actual yield killers and thus the real mistakes in investing. Not achieving the very best return is not a mistake. It is, as I said, just not the very best return. You can see the impact of wealth-destroying events or mistakes in the chart below. We assume that in the 50 years, there were only three events with irreversible losses (two times 50 percent and once 25 percent of the total assets were destroyed). Our investor with an annual return of 6 percent (but with three events with an annual negative return of 2x minus 50 percent and 1x minus 25 percent) still has a decent result at the end with over 400,000 USD/EUR. But you remember that he also invested a total of 200,000 USD/EUR.

Wealth destroying events and their impact
Wealth destroying events and their impact

Even for an investor who has a higher return because of his risky strategy, such events significantly impact the overall performance.  Not in a good way. We assume that the high-risk investor achieves an annual return of 10 percent. As in the example above, the initial capital was 10,000 USD/EUR, and the yearly investment 4,000 USD/EUR. With three extreme events of losing 50 percent of the assets twice and 25 percent once, this investor did worse after 50 years than the investor with an annual return of only 6 percent.

The risk approach vs. the slow and steady approach
The risk approach vs. the slow and steady approach


What can we learn from this section?:

  • Strong performance is inevitably always accompanied by a substantial risk. Risks that affect the sum of the assets can adversely affect the total return.
  • Those who have a high risk do not necessarily have a better performance in the long run, even if it looks like it initially.
  • It’s not a mistake if you haven’t made the best decisions. Real mistakes are only decisions that lead to irreversible losses. Investors who take high risk depend on not making such mistakes. Investors who do not take this risk are allowed to make “wrong decisions” (i.e., not the best decisions).

I keep preaching it: for me, investing is not a competition

Let’s move on to another point that I find very important but often very difficult to comply with. Investing is not a competition. That is an essential statement. It’s not about how your neighbor performed this year or last year. Investing means wealth management, and here the first rule is: don’t lose money (see above). But if you start comparing yourself like in a competition or even want to win, then the first rule for you is: beat your opponent. With this change of perspective, however, you become vulnerable to mistakes.

That’s why we instead focus on our performance. That doesn’t mean we are uncritical. Of course, we reflect on our strategy. But just because tech stocks are currently rising particularly strongly and other investors are achieving high returns with them, I don’t sell my dividend pearls to put more capital into tech stocks as well.

So when everyone is making more money, be patient

I know it can be hard to see that other investors are making more money. It’s especially annoying because you’ve been investing for years or even decades, you read annual and quarterly reports, and you only invest in companies with a reasonable valuation. In reality, however, all this counts for nothing right now. A Twitter post by Elon Musk is enough to shoot shares to the moon, regardless of the underlying business.

Frustration is normal in such situations. I can only suggest staying calm and patient. Your companies will not become worse than before just because the value of other companies increases.

I follow the rules of simplicity

I like that investing is quite simple. Look for good, profitable companies. Compare their profits and cash flow per share to their share price. Are you willing to pay the share price for the profits? If so, you’ve found a potential investment. If no, then leave the stock, even if it continues to rise in price. Spontaneously, I would summarize the rules of simplicity as follows:

I don’t try to outsmart the market

We are not better than the market in the long run, so we should not pretend to outsmart it, which means that a broad-based attempt at market timing will not work in the long term. That’s why I don’t even try to base my wealth management on such a strategy.

I do my due diligence

Everyone needs to do their due diligence before making investment decisions. It is very simple. These are your assets and, therefore, your responsibility.

There was never a free lunch so I won’t chase after it

Nothing is given for free in life, certainly not on the stock market. There is no such thing as a free lunch. We don’t know how share prices will develop in the medium term. Shares that only rise can fall just as quickly.

So don’t try to pretend that profits on the stock markets are guaranteed. You become an owner of companies, and that is always risky.

It’s relatively simple, yet so hard, especially in times of greed or fear.

In this sense, I wish you the very best,


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8 months ago

Man, I am so pissed with this bull market. I literally pray for bear crash market, please God, 50 % cheaper :)) Good read , thanks, FOMO is our enemy, gotta think like busienss owners and be patient.

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