The percentage of people who are able to earn profits that are better than what the stock market delivers on average is relatively small. Success, however, can be defined in different ways. Investors may be successful at investing in a particular asset class relative to the rest of the markets. Traders might be successful using a particular strategy some of the time but could see that very same approach fail under different market conditions.
By some estimates, only 20 percent of investment professionals are successful investors. Success could be defined as producing returns that are as good or higher than the average profits earned in the stock market. As much as 80 percent of the investment management community has produced lower profits than the broader stock market, according to the Daily Finance website. Subsequently, the argument for index investing becomes increasingly compelling. Index funds are meant to deliver returns that are as good as the broader markets for fees that are a fraction of fees charged by active fund managers, who frequently buy and sell securities.
Many investors are successful some of the time. In order to achieve any level of success in the financial markets, investors need to be willing to take a long-term approach and be patient, according to Smart Money. Hedge fund manager Jonathan Hoenig, who oversees the Capitalist Pig fund, said in a Smart Money article that only 40 to 50 percent of his investment ideas or trading strategies prove to be successful. Trouble begins, he suggested, when traders remain stubborn without approaching an under-performing investment idea from a different perspective.
Trillions of dollars worth of stocks trade in the financial markets around the world. There is a very small percentage of investors who come close to the success attained by Warren Buffett, chief executive of Berkshire Hathaway. Buffett began investing in the stock market at an extremely young age before building Berkshire Hathaway, which invests in other businesses, into one of the most successful companies in the world. In 2011, Buffett allocated $5 billion into troubled Bank of America in an attempt to keep the bank from becoming insolvent, according to "The New York Times."
A low percentage of investors earn returns that are higher than the average performance in the stock market, according to the CBS Money Watch website. In the eight decades leading up to 2009, U.S. stocks delivered average annual returns of almost 10 percent. Investors who bought stocks with a small market capitalization, which represents the size of a business, over the same period were successful at outperforming the broader market averages.
- DailyFinance; 10 Secrets Of The Most Successful Amateur Investors; Charles Wallace; January 2011
- SmartMoney; Everybody With Money; Jonathan Hoenig; December 2006
- "The New York Times"; Buffett Invests $5 Billion In Bank Of America; Ben Protess, et al; August 2011
- CBS MoneyWatch; A Simple Way To Beat The Market; Larry Swedroe; May 2010