Imagine if you knew exactly which stocks are going to show the best returns over the next five years. Perhaps you would say that only God could have this knowledge. Knowing which stocks will deliver the best return, how do you think they would have performed and how much could they have suffered along the way?
To answer these questions, researcher Wesley Gray conducted a study of the 500 largest stocks traded on the NYSE, NASDAQ and AMEX exchanges between 1927 and 2016. Gray’s work was published in February 2016, under the title Even God would get fired as an Active Investor.
Every five years since 1927, Gray has assembled a portfolio of the 50 stocks that would perform best over the next five years, weighted by their market value.
Gray called the manager of that portfolio God, as no one would have known exactly what the best stocks would be before they occurred and for years to come.
The return on God’s portfolio over these 90 years was 29.4% per year. While in that same period, the S&P 500 yielded the equivalent of 9.9% per year.
Obviously, it would be expected that the Deus portfolio would present a return much higher than the American stock market index.
However, the most interesting thing is to know that this portfolio would also have gone through terrible moments.
Between 1929 and 1932, God’s portfolio lost 76%. In the 2008 financial crisis, he would have devalued more than 40%. During the tech crisis of 2000, Deus’s portfolio reportedly dropped by more than 39%.
The idea of ​​Gray’s study was to show the educational aspect of venture investing. Even the best portfolios will suffer during times of turmoil.
So if your portfolio is suffering right now and you trust the long-term scenario, be patient. Risky investments must have a long-term horizon.
Michael Viriato is an investment advisor and founding partner of Investor’s House
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I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
