Investors are always looking to find the next Amazon, but is trying find the next “superstock” worthwhile? New research from Professor Hendrik Bessembinder shows that most U.S. stocks don’t beat Treasury Bonds and that searching for the next superstock is likely to end in disappointment. To capture top performers and harness stocks’ power for growth, diversification is key.
Despite passive investing’s incredible recent growth, there are several reasons we’re not concerned with indexing becoming too popular.
Shares of Amazon have soared 49,000% since the company went public. Finding the next Amazon may be the goal of many investors. Yet just a tiny handful of stocks are responsible for most of the stock market’s historical gain. Diversification is the only way to ensure such “superstocks” are in your portfolio.
Uncertainty is a constant in investing. Rather than hope for portfolio gymnastics to deal with unforeseen events, sensible investors rely on diversification and discipline. In so doing, they distinguish themselves from speculators and, we’d argue, not only enjoy a higher probability of success but a better quality of life, as well.
Market-timing investors’ efforts to outguess the random day-to-day variations in the stock market hurts their performance. They’d have better results if they behaved like rats.
Investors have many reasons to despise international stocks today. Chiefly among them is performance: they’ve underperformed large cap U.S. stocks by 7% per year since 2008. Despite international