Hundreds of thousands of people search for terms like
“stocks to buy today” or “best stocks to buy” or “top stocks for 2021” every
single month.
The appeal is understandable, but most of the articles that
pop up are ones quickly written by freelancers that often don’t even invest in
the stocks they pitch. They’re just writing for one-time clicks and pageviews
rather than doing serious research to provide value and establish long-term
relationships with their readers.
The truth is, investing is hard, and building a portfolio of
top stocks to buy that beat the market is something that even financial
professionals have trouble doing consistently.
In fact, after fees, only about 15% of actively-managed
funds outperform the S&P 500 over any lengthy period of time.
For the average non-professional investor, it’s even worse.
As calculated by Dalbar Inc, and charted here by JP Morgan, the average
investor barely beats inflation, and vastly underperforms the S&P 500.
That’s mainly because investors tend to buy stocks or funds
during market tops when they are expensive and all the news is good, and then
sell stocks and funds after they crash, when they are cheap. They keep doing
that over years and the returns end up being quite bad.
Meanwhile, value investors like Warren Buffett are building
up cash during euphoric bull markets, because everything is expensive and very
few stocks meet their strict investment criteria. Then when a stock market
crash eventually occurs and top stocks are on sale everywhere, they deploy their
cash hoard and snatch up the bargains of a decade.
However, there are plenty of independent, disciplined
investors that build serious wealth in the market over the long term by
following similar methods. It’s simple, but not easy, to stay focused and buy
high-quality companies at reasonable prices on a consistent basis.
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