It’s that time of year again where I compare the return of my real-money portfolio against those of the entries in a stock-picking contest held at Financial Uproar. Because my portfolio is almost completely indexed, I tend to end up somewhere near the middle. The important question is whether I’m above or below the middle.
Back in 2012, my return was trounced, but I made a partial comeback in 2013. Now for 2014 ... drum-roll, please ... I beat the average by 4.6%. I would have placed fourth out of 11 participants. If we look at the three-year results among the stock-pickers who participated in 2012, 2013, and 2014, none beat my portfolio.
What’s the lesson here? It’s certainly not that I’m a great investor. Anyone capable of ignoring the market’s ups and downs can be an index investor. The real lesson is that it’s hard to beat the index over the long term by picking your own stocks. There appear to be some investors, like Warren Buffett, who can do it, but these investors are very rare.