Even with the number of mediocre money managers in the world, there are a lot including myself, the average stock investor is able to create wealth faster than with any other asset class.
When I left the brokerage industry it was to help individual investors manage their own money. I thought there was a shift coming in the market, but I was wrong. Even though E*trade, Interactive Brokers, and other discounters were on the market then, I overlooked the generational dependency on the experts.
Admittedly, I was never that good at managing money for others, better at finding stocks than client services. Plus, during the early 2000’s investors weren’t going to take less communication from their managers like they did in the 50’s with Warren Buffett. Granted, while Buffett had the rule of not talking about what investments the partnership made, in the beginning he also guaranteed a 4% return to his partners. No one is doing that now.
Managing money is really hard, which is why very few people should actually do it. The robots at Wealthfront, Betterment, and Quantopian are paving way for that reality, but the traditional firms will not go gently into the night. I do think that the shift from full service, wanting someone to yell at, to self directed, wanting better returns thanks to lower fees, money management is here now. For real this time.
Financial advisers will still be around to give guidance or provide help. Fund managers will still be around, but fees will likely keep going down, especially since most underperform the market. The one rule that makes the most sense to me is that if your investments do not outperform the S&P 500 over a 3 to 5 year period, then its best to just buy the index. Even the great fund manager Ray Dalio has the majority of his money in the broad market indexes.
That being said, you should be able to earn 20 – 40% a year while you have less capital by using arbitrage and options leveraged against your long-term holdings. For example, you bought Facebook at $100 because Gary Vaynerchuk raved about it. Now it’s at $170 and you’re looking pretty smart. What happens if during the next 3 years it doesn’t move higher, do you sell? What if you do sell and by 2025 it’s at $500, but you got shook out early. The point is this: if you believe in the future of a company, the stock value should move higher with greater levels of success, but it rarely happens in a straight line. Thus, while you’re waiting, you need to be trading in fairly predictable shorter term wins.
The Bottom Line: If you want to make more money in the market, do it on your own – either through an index fund or by learning how to generate high rates of interest through both long-term investing and short-term trading. The name of the game is yield, not dividend payments, but dollar per dollar yield.