"Beating The Street" In 500 Words
This is a Post from the Symbol Surfing Blog from Tue, Jan 2, 2018.
Beating The Street is a book by legendary investor Peter Lynch.
"As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than doubling the S&P 500 market index and making it the best performing mutual fund in the world."
In the 300+ pages, he talks about how he was able to achieve these amazing results.
If you want to learn about a really simple and low-risk way to beat the street, read on.
Your B.S. Meter should have broken just now.
First, you should be extremely skeptical if anyone claims they can beat the street.
Second, even if it was possible, it would not be simple and definitely not low risk.
I will provide proof.
Just continue reading.
First of all, what is "The Street"?
It's referring to Wall Street or the overall market.
The overall market is commonly referred to as the S&P 500.
"The Standard & Poor's 500, often abbreviated as the S&P 500, or just the S&P, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ."
So beating the street simply means beating the performance of the S&P 500.
If the S&P 500 annual return was 7%, we want to get higher than 7%.
If theï S&P 500 annual return was -3%, we want to get higher than -3%.
So how can any investor start beating the street every year?
Invest in a S&P 500 ETF that pays a dividend.
The one I like is SPY.
Let's look at some numbers.
From January 7th, 2011 to December 31st, 2015, the SPX 5 Year Return was 65.5%.
From January 7th, 2011 to December 31st, 2015, the SPY 5 Year Return was 64.9%.
Over the 5 year period, SPX and SPY had an almost identical stock price performance.
The SPX share price return, 65.5%, was actually more than the SPY share price return, 64.9%.
Actually, even though the share price rate of return of the SPY did not beat the market, the SPY actually did beat the SPX.
The reason is that SPY pays a dividend.
Over the 5 year period, the SPY Annual Dividend Yield averaged over 2%.
The SPX 5 Year Return was 65.5%.
Annual Dividend Yield: 0%
65.5% + 0% + 0% + 0% + 0% + 0% = 65.5%
The SPY 5 Year Return was 64.9%.
Annual Dividend Yield: 2%
64.9% + 2% + 2% + 2% + 2% + 2% = 74.9%
The annual dividend yield is the difference that beats the street.
What did Warren Buffett suggest to LeBron James?
"Just making monthly investments in a low-cost index fund makes a lot of sense." - Warren Buffett
That's it. No stock picking. One symbol that beats the street. In under 500 words.
Let me know in the comments section!
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