Can You Beat The Stock Market?

Video Transcript: Can You Beat The Stock Market?

00:00 Hey, this is Phil. Thanks for stopping by with Foundation Wealth Planning. I'm a CERTIFIED FINANCIAL PLANNER™  and today I want to talk about, are you able to pick stocks, beat the market and have above-out returns? That's what everybody wants to know, can we make some money around here? So if you like the video follow me for more. Follow, like, subscribe, all that good stuff. And then do you have additional questions or comments, or if you want me to do more videos on a certain 00:29 topic, please let me know. 

So you'll see a lot of times out there online, people say, hey, you can beat the market, invest in these stocks, or pay for this newsletter and learn these stock picks and this and that and they're selling courses or newsletters or whatever. 00:44 But is that legit? Or just because they're selling something doesn't mean it's. Not true or it's a scam But you want to be careful out there so you want to know what's going on. And so I get this question you know, a lot And a lot of people think is a financial planner or financial advisor that 01:04 I am sitting here trying to find The hot new stock and I am NOT. It is very very difficult. Now I empathize with people that want to do it. 01:16 I love the concept of finding a company that runs a clean business, they operate the right way, they take care of their employees, they create a product that I like. 01:31 I like the concept of investing money in that specific company stock. That's cool to me. I think that's great. 

But if I do that, I shouldn't have any thoughts that that investment is going to out-earn the market average if I just put it in a mutual fund or an index fund. 01:56 Picking stocks is incredibly hard. You have to, you have to make a lot of forecasts. You can look at their balance sheet and their profit and loss and look at their company and look at where they are in the market and say, okay, here's what they've done in the past, but then you have to predict in the 02:12 future what are they gonna do? And there's so many factors that come from regulatory things to lobbyists as a lot of back alley deals that happen, a lot of lobbying efforts in various industries, you know, and certain companies can take advantage of those. But we as the average person don't really know what's happening on those fronts until it's already happened. 02:37 And at that point, it's hard to get in on it. And the other thing is if you do pick that one stock that's a big winner, in order for it to change your life you would have had to put a lot of money into that stock, which would be incredibly risky. 02:55 And then if you were to put it into a couple of different stocks, likely of the five or 10 stocks you put in there, all of them would be duds except for maybe one. 03:04 And then does that one really hit out of the ballpark? It's very, very difficult. And there are very smart people, much smarter people than me that are out there constantly looking at charts and company performance, and they're trying to figure out where's the next investment opportunity gonna come from. 03:21 And I saw this chart by Charlie Bilello on Twitter. He just does a lot of charts out there. This was something that kind of inspired this discussion, but I had seen this and it talks about over the last 20 years, 24% of the S&P 500. 03:37 constituents outperformed the average stock. Right, so only 24%. So if you take the S&P 500, that is the largest 500 US companies. 03:50 Right, and you can invest in an index fund that just buys all 500 of those. And then at that point, you would get, you would, your return would be 04:02 The average return of all those 500 companies. Okay, so you would have one company that just went gangbuster, most companies would be very terrible and then some, you know, in the middle be beyond that. 04:16 And so you would just get the average return on that. By doing that strategy and by this chart over the last 20 years you would have beaten 76% of the individual companies within the S&P 500. 04:31 So there were only 24 stocks(misspoke) or 24% of those 500 stocks that outperformed the average. And that skewed because there's a couple stocks that just blew past everybody else. 04:43 And if you knew what Amazon was gonna be when Amazon was small, you could have been one of the ones that took advantage of 04:50 that winning. But how often did those happen? And how often do you know that those are happening before they happen? And how many companies did we think we're going to be the next Amazon that people put money in to end up not being the next Amazon? So it's a very difficult thing I think in theory and as someone that likes investing in the stock market 05:13 I love the idea of trying to find a company that I like and subscribe to but it's just a very difficult challenge. 05:23 And things change rapidly. New leadership. New products. You don't know what's going to flop. What's going to not? And you just have no control as an investor. 05:33 And you have to watch it. And if you think it's going to no longer be a good investment, then you've got to sell it. 05:37 And that's it. Did you make the right decision?

So in my experience, the answer would be well in theory yes. You could pick a stock to beat the market but it is going to be very difficult so in actuality most likely, no. You will not be able to pick a stock that could beat the market. so keep that in mind 06:00 when you're out there and Again, if you just have a company that you like their product and you like what they stand for, you could certainly invest in that company but don't have any illusions that they might be the next big winner because most likely they're not going to be. 06:20 So then we move on to mutual funds and a similar theory applies there. And you could get a fund that has a mutual fund manager that is trying to pick stocks. 06:37 So you could pick and most mutual fund managers base their stocks based on well, the past performance of the company, but also future. 06:46 What you're doing when you're trying to pick a stock is you're trying to project. What that company is going to do over the next five, 10, 15 years. 06:55 And that's a difficult proposition. And as a mutual fund manager, the person that is in charge of a mutual fund, they're the one that's picking those stocks. 07:01 We just talked about how difficult it is to pick the next stock. 

Well, as a mutual fund manager, you're competing, and this would be the same as a retail investor, just somebody that's out there picking a company stock. 07:12 You're competing against all. The other brilliant, because they are very smart, mutual fund managers that are trying to find the next big investment. 07:23 And what are the odds that you're gonna do that? well not very high, most mutual funds don't beat the market. 07:30 And so why would you as an individual think that you could probably beat the market? Chances are low, again it's possible but very low. 

07:37 And the mutual fund provider or mutual fund company, their competing against all the other companies. And the thing that most people don't realize is that it's a fixed number, right? 07:50 They're all trading and swapping the same stocks. So if one mutual fund sells 100 shares of one stock, another mutual fund is going to buy 100 shares of that same stock and you're just trading things back and forth. 08:03 There's not an unlimited supply of stocks and knowledge. There's a fixed supply of stocks and shares out there. And all these companies are trading them back and forth. 08:18 So who's gonna be the winner? That's hard to say. So when we're looking at a process, again, if you're gonna pick a mutual fund and there are funds that I use that you deviate from just buying the market, you have to understand what their process is. And understand if is it a sustainable process that can be predictable and not necessarily the best performer. 08:45 So I don't have any illusions that the funds that we use are going to be the best performer every single year, but what we're trying to find is a consistent investment approach that we know is going to help smooth out the ride for our clients and make sure that we're taking care of them. 08:58 And then of course we also have our screens towards, you know, Catholic values that we use funds for that as well. 09:04 So there are some different things that go on within that and I can make another video about that at some point. 

09:09 But I hope this helps and I feel like if you're out there trying to find what the best investment is for you, it's you, you know, evaluate your risk, figure out what you're willing to gain or lose by a certain investment and figure out what, you know, what your strategy is going to be. 09:29 And when times get tough, you want to make sure you can stick to whatever strategy that you have because if you're just going to bail on a strategy whenever it gets bad, well, then you probably should have just picked a different strategy. 09:40 You want to pick a strategy that you can stick with through thick and thin and that's going to be the thing that's going to get you the best chance to have better returns. 09:48 So I hope that helps. I think that's my point. So I was going to wrap it up and I hope you enjoyed that. 09:59 Let me know what you think. And God bless.

*For educational purposes only, not investment advice

Phil Francois, CFP®
Foundation Wealth Plannng
phil@foundationwealthplanning.com