想当理财高手
注册时间: 2005-01-14
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来自: 北京
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Tripling your long-term return?
Is it possible to create a portfolio of stocks that will return 20 to 30% over the next 40 years?
NEW YORK - I've read that stocks have provided an 11 percent annualized return since the late 19th century. Is it possible to create a portfolio of stocks that will return an annualized 20 to 30 percent over the next 30 to 40 years or are these super-high returns something only a Warren Buffett or Peter Lynch can attain?
-- Darshan Patel, Tampa, Florida
Although it's possible to get stock annual total returns going back to the late 19th century -- indeed, you can get them going back at least to 1825 -- the quality of the numbers isn't as reliable as that available from the early 20th century.
And using that data -- specifically, annualized returns calculated by Chicago investment firm Ibbotson Associates from 1926 through 2004 -- we're talking a compound annual return for stocks of 10.4 percent, which is close to, but still a bit below, your 11 percent benchmark.
But what you're wondering is whether through dint of research, savvy investing, superior investing technique or whatever (luck?), is it possible to earn long-term returns almost double or triple these long-term averages.
My answer: not bloody likely.
Think of it. These returns represent what the total of all investor dollars over that period have earned on average. Actually, these returns don't include trading commissions and other transaction costs, so investors' actual returns overall would have been somewhat lower. But let's ignore expenses for now.
What this means is some investors would have earned returns higher than this average and some would have earned returns lower than the average.
Playing with the numbers
If you look at returns for professional money managers over time, you find that it's unusual to find ones who have been able to beat the stock market averages over long periods even by a couple of percentage points a year.
The reason is that investing is a very competitive business that attracts a lot of very smart people who do a lot of research. Someone may come up with a strategy or insight that generates above-average returns for a while. But it doesn't take long for the savvy players in the market to catch on to new ideas.
And once more and more investors begin to exploit those insights, extra profits get whittled away. Simply put, it's hard to gain an edge, and even harder to gain an edge that will last year after year after year.
True, a handful of people have managed to do this. Some because they're terrific investors, some because they've had an extraordinary run of luck.
After all, if you have hundreds of thousands of people playing a game, the law of large numbers says you're always going to have a few "outliers," that is, people with abnormally high (or low) performance. To some extent that's just the luck of the draw.
The anomalies
And then you have the real anomalies. The people whose success has been so far beyond the averages and has persisted for so long that even luck, chance or the law of large numbers can't explain it. Their performance appears to be simply a matter of superior skill.
Here, I'm talking about the Warren Buffetts and Peter Lynches of the world and, more recently, Bill Miller, the manager of Legg Mason Value Trust, who's beaten the Standard & Poor's 500 index an incredible 14 years in a row.
But we are talking about a tiny, tiny percentage of investors who fall into this group. They are truly a rare breed, something akin to baseball players who can hammer out more than 60 homers a year. (Well, before the era of performance-enhancing pharmaceuticals.)
What's more, I'd contend you can only identify this group using 20-20 backward vision. That's to say, we may have many investors right now who are working on incredible runs -- 5 or even 10 years of incredible market-beating returns -- who appear to be headed toward Buffett or Lynch or Miller status, but who will eventually succumb to the gravitational laws of the market. Their streaks will end, their superior performance fade and what we at first thought was superior skill will turn out to be simply the luck of the draw.
So is it possible to create a portfolio of stocks that will return 20 to 30 percent over 30 to 40 years? Yes. And I'd expect that out of the millions of people who will be investing worldwide over the next 30 to 40 years, a few rare individuals will pull off this feat.
Is it probable? No. The competition is too fierce, the chance to gain an enduring edge too small.
Should you even try?
The even more important question, though, is whether individual investors like yourself should even be trying to pull off such a feat. I'd argue that the answer is no.
People who shoot for unrealistically high returns often, knowingly or not, take huge risks. And those risks can, and often do, lead to sub par rather than superior performance or, in some cases, big losses that can take years to recover from.
My advice: build a diversified portfolio that looks something like the overall market -- that is, one that contains mostly of large-company stocks (split roughly evenly between value and growth shares) and a smattering for small stocks (again, split between value and growth). And don't fiddle with it too much. Keeping transaction costs down will boost your return.
Or, you can do this the easy way, and simply buy a low-cost broad stock market index fund that tracks a benchmark like the Wilshire 5000 or an exchange-traded fund that tracks a benchmark like the Dow Jones Total Stock Market index.
By doing this, you're assured of getting something close to the average return for all stock-market investors. That may not sound as exciting as gains of 20 percent or more. But it's a lot more realistic -- and more likely to increase your wealth over the long haul.
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