The average annualized ‘stock market’ return of large companies listed in the S&P 500 is about 11.6% from 1973 through 2016.
Another source shows a 10% “annualized” return over a recent 100 year period, including dividends.
This means that ‘the average company‘ created an annualized return of 10% for its investors.
But there’s a big difference between the average company, and the average investor. As a fact, there is no requirement for any investor to only purchase ‘the average company’.
Consider the grocery store, as an example.
The average grocery store product probably has lots of added salt and refined sugar, high fructose corn syrup, artificial sweeteners, dyes and coloring, preservatives and antibiotics, is highly processed and manufactured, and is deficient in nutrients – not to mention, the ultra high risk- low reward drug and alcohol products like cigarettes, beer, and wine.
By no means, however, is the average grocery store shopper required to purchase the average grocery store product.
There’s absolutely no obligation for any shopper to consume any of these average and typical store products, despite these products being the more actively promoted items in the store.
Fortunately, ‘healthy’ recipes are constructed, published, and commonly accessible to help shoppers avoid the ‘average’ food product.
Although past performance is no reflection of future performance, good recipes have been tested and proven to be useful in the past to help cooks achieve their desired outcome. It’s a choice as to whether or not we will use healthier recipes to prepare meals, opposed to just purchasing the average products.
Any ‘average’ is a reflection of both very low quality and high quality products.
Choose to avoid low quality products.
Similarly, each of us have a choice to avoid being an ‘average’ investor. Any investor can choose to purchase above-average, healthy products that are associated with relatively superior performance. Again, to find healthier products, shoppers (aka, investors) may use recipes that have been tested and proven to be useful in the past.
The average grocery product is refined, manufactured, and processed, with toxic levels of added chemicals associated with diabetes, hypertension, hyperlipidemia, and cancer. But above average food products are more nutrient dense and associated with improved life expectancy.
Similarly, while the average big company (S&P 500) return between 1973 and 2016 was 11.6%, it isn’t so hard to believe that the above average big company may have achieved 20%, 30%, or even above 50% returns within a year.
During the NVDA run-up, even the leveraged ETF UPRO couldn’t keep up.
10x run-up on the above average company
While only a 4x run-up on the leveraged ETF
This alone, should vividly illustrate why it’s worth it to study and find above average companies.
Create and test your own recipes to identify above average companies, or use a recipe that has been backtested by others.
pH14 Plan publishes ‘recipes’ (or filters, or algorithms) with backtested results, that have been used to find above average companies.