The majority of do-it-yourself investors that I know are stock-pickers. Among techies, the big debates are whether Apple stock will go much higher or just higher, whether Google has run out of steam, and where Facebook is headed. While they disagree on many points, one thing unites most of these stock-pickers: they protect their egos by never figuring out their investing returns.
There are many ways to compare your returns to an index. I used to work out my returns on different subsets of my investments and over various non-standard lengths of time, and only recently I calculated my yearly returns on my complete portfolio and compared them to an appropriate benchmark. Another approach was suggested in a comment by reader Gene: “every time I make a purchase, I simulate an equivalent purchase in the S&P500 index.” Then he can just compare his real portfolio value to the simulated index portfolio value. The majority of stock-pickers carefully avoid all such methods of determining if they are any good at picking stocks.
These ego-protecting investors can stand proudly with lottery players, many of whom are sure that they’ve made money on lottery tickets over the years. I’m thinking of just closing my eyes the next time I’m driving on the highway because I’ll be able to imagine that I’m staying in the middle of my lane. Wish me luck.