Where Are All the Trillionaires?

Recently, I accidentally clicked on an ad while trying to read a story on the internet. “It’s easy with my proven investment strategy to turn a few thousand dollars into millions,” a self-proclaimed expert insisted as he pointed viewers towards his paid services.

To an unsophisticated or inexperienced investor, this self-proclaimed “expert” might have sounded convincing and credible. After watching the video, I find myself frightened and worried about how many gullible, naive and desperate investors would seek to capitalize on this nonsense.

Today, many new investors are enamored with the possibility of making easy and substantial money in the stock market. As someone who started working in the financial markets at Merrill Lynch fresh out of college in 1984, I can tell you from direct and indirect experience that generating consistent double digit net returns is extremely difficult and rare.

I vividly recall sitting at my desk that day in 1986, when a much-hyped local company by the name of Microsoft had its initial public offering. I remember telling clients that I thought they should avoid purchasing shares after it popped because I thought it was outrageously expensive. Little did I know then of what Microsoft would ultimately become. While Bill Gates aspired to build a business that supported the premise of “a computer on every desk and in every home,” very few people identified and invested in his audacious vision in those early days.

With 20/20 hindsight, I wonder what would have happened if I had bought Microsoft when it first started trading? I question myself as why I didn’t learn from missing this rocket ship as there have been other similar episodes over my decades of looking for investment opportunities. Looking back, I wonder what would have transpired if I were able to identify the trends.  Going one step further, what would have happened had I avoided the handful of major equity crashes. I contemplated how I would have fared if I adhered to these two relatively simple decisions over my 36 year career in the financial markets:

  1. What if I had been able to identify early paradigm shifting trends and correctly pick the future leaders in these areas early on?
  2. What if I had identified equity market extremes or risks so that I could correctly avoid a handful of major down-drafts like the 1987 Crash, the 2000 Internet Bubble Burst, the 2008 Great Recession, and the 2020 Covid Meltdown?

Let’s say for argument’s sake that instead of having to pick obscure stocks or minor market gyrations, I only had to participate in or avoid stocks or market moves that are readily apparent in hindsight. Intuitively adhering to these guidelines seems relatively easy and straightforward on the surface.

So, what if I were able to put those two seemingly simple strategies into effect?

Well…if I contributed my roughly $100,000 bonus in 1986 to a retirement account that allowed for tax-free compounding and successfully met these two objectives, I would be in pretty good shape today. My account would be worth a staggering $1.24 TRILLION dollars! What if I were able to continue this investment acumen for another 30 years until I reached Warren Buffet’s age? The numbers are too enormous to even calculate.

Sadly, and despite my best efforts as an investment professional with over 30 years of experience, my track record rarely got even a portion of those two objectives correct. I am far from alone on this front. Even the best equity investors of the last century — Warren Buffett, Julian Robertson, Seth Klarman, Steve Cohen, Leon Cooperman, to name a few — are constantly humbled by how difficult it is to time the market and select the best-performing individual stocks.

Even more telling is the Dow Jones’ findings that, over a 15 year time-frame, almost 92% of professional equity managers fail to beat the benchmark index.

For adventurous investors jumping into today’s treacherous and volatile market, it’s critical to have reasonable and well-founded return expectations. For example, the S&P 500 return for that 34-year period since Microsoft’s IPO would have yielded 10.43 percent. This return is pretty consistent with the returns that would have been achieved since this benchmark was established in the 1920s. To put these numbers in more tangible returns: had I just invested my available funds in 1986 into the S&P 500, I would have over 15 times my original investment. Had I avoided the largest economic downswings I would have over 70 times my original portfolio; however, I would still have roughly a trillion dollars less than if I was also able to see “the next big thing.”

Even the greatest investors are inevitably going to make mistakes and miss opportunities. The “Woulda, Shoulda, Coulda” lamenting will never stop. Don’t beat yourself up over questions like “Why didn’t I buy Apple when it was less than $1.00 per share” or “Why didn’t I go to cash when the markets were obviously so overvalued like prior to the dot com crash in early 2000?” Hindsight is always 20/20 and it is completely unrealistic to think any investor can regularly spot those moments in real time. The best we can hope for is to learn from our experiences and be partially right. Just being right a tad over 50 percent of the time can lead to attractive returns over the long term.

Personally, I would be ecstatic to generate returns in the 15 percent range after fees and taxes every year and let them compound. Warren Buffett, unquestionably the greatest equity investor of our generation, has accumulated returns over his 56 years that are over 400 times greater than the S&P 500 for the same period. Even this stellar, and likely unrepeatable, feat is dramatically less than what one could have earned simply following my two easy trading rules. In fact, following my strategy for 34 years would have earned over 70 times what Buffett’s exceptional stock picking has generated over 56 years.

Of course there will be a never-ending shortage of day traders and wannabes who genuinely believe that they are different. In their minds, they are gifted and possess either the intuition or surefire methodology necessary to defy the odds. The expectation or anticipation that these newfound market experts have, the belief that an investor can double their money in a year, is foolhardy even for the most sophisticated hedge funds. It is borderline ridiculous to think the same feat can be accomplished over and over again.

If it were so easy, where are all the trillionaires?

Originally published on DataDrivenInvestor.com.