The point is you have to be able to let the home run ride or cut when it obviously isn’t and that is hard - it’s literally the whole ‘running money’ business and unless you’re in it, you are at a disadvantage.
Yeah, but did you know which ones from the start? The whole point of index funds or diversification in general is that you don't.
You don't, you can't.
You pick the best ones, many won't give you much return or even a loss, but sometimes you get a 100x. My best return was over 3000x, those are the ones that make up for all the losses.
As someone who has hung out in Reddit's personal finance areas for many years now, the paniced posts of March 2020 and in 2022 were very real. Lots of climbing people down from the ledge during those time periods.
Many folks realized that they may be more risk adverse than they thought. (And those were relatively short bursts: if the things had headed down for months (or longer) there would be much more sleepless nights for many people.)
Those were just minor blips. 2020 was a very short-lived dip of less than 30% and 2022 was a bit more sustained drop of ~35%.
The dot.com bust was an actual legit crash, at almost 85% drop.
I'd suggest at current valuations we need to be prepared for a crash at least as significant as that.
That is very true and a trap that is important to be aware of. Anyone who started investing after ~2010 has only ever experience a bull market, so expect severe pain at some point. It doesn't go up forever.
I'm old enough that my investing history inclused the dot.com implosion that wiped out nearly all of everything, and also the financial crisis of 2008. It remains true that investing in the winning companies is by far the best return by orders of magnitude.
I would hope you realize that your good fortune (aka luck) does not generalize to an entire population.
But it's not pure luck. Find good companies in an industry segment you fully understand (for me, that's Silicon Valley enterprise tech), invest early and hold on. You'll have many losers, that's totally fine. But the 50x or 100x returns will make up for it.
Sticking with index funds is very good advice:
* https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...
* https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
> After about three decades investing, I can say that more than 95% of my returns are from just a small handful of individual stocks.
The fact that a handful of stocks are responsible for the majority of returns has been known for years/decades:
> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251
> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447
Of course you have to know not just when to pick them, but to unpick them as well when they stop performing well:
> […] Since 1926, the median ten-year return on individual U.S. stocks relative to the broad equity market is –7.9%, underperforming by 0.82% per year. For stocks that have been among the top 20% performers over the previous five years, the median ten-year market-adjusted return falls to –17.8%, underperforming by 1.94% per year. Since the end of World War II, the median ten-year market-adjusted return of recent winners has been negative for 93% of the time. The case for diversifying concentrated positions in individual stocks, particularly in recent market winners, is even stronger than most investors realize.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4541122
To recommend to the general public and random people that they try to pick the winners when >96% of stocks give below market index returns is the height of financial irresponsibility.
Believe what you like, I'm cool with that.
I have many Wall Street friends who are aligned with your approach, so you are in good company.
My returns over the last 30 years obliterate their returns, because turns out investing in high flying companies will have much better returns than an index fund. You do you.
Only if you gamble correctly. And the '50-100x returns' you cite elsewhere are really hampered by a bunch of duds that lose money. Generic index fund would return ~1700% in 30 years. That basically means you have to pick right 16-33% of the time. That math just doesn't work out.
This is controversial but very bad advice. No index funds, by their nature, will ever match the return of high-flying company stocks.
If you have very little investment capital available, then yes, allocate it all to index funds because you can't afford to narrow it down yet. But as soon as you have some room to invest in individual stocks, do it.
After about three decades investing, I can say that more than 95% of my returns are from just a small handful of individual stocks. The index funds are in the noise. More than 60% of my net worth is just from two stocks.