Do people who buy and hold individual stocks for longer than 10+ years have a much better chance of outperforming the market?

Question

edit: I really wanted to ask "do people who buy and hold individual stocks for longer than 10+ years have a much better chance of outperforming the market, such that this is actually a better strategy than relying on index funds?"

The average retail investor has a ROI of 2% vs the S&P 500’s return of 9.8%.

But this unfortunately includes people who make a ton of emotional trades. For example people who doubt their choice and liquidate everything when it underperforms in the short term. People who try to time the market. People who sell solid innovative companies too early to “lock in gains” and people who try to day trade.

And then we’re comparing this to a theoretical investor who buys the entire US market and never sells.

But what about comparing people who buy and hold their top 5-10 individual stocks and never sell as well?

So far I tried backtesting this with various US blue chip stocks like McDonald’s, Costco, Apple, BRK, Google, j&j, WM, GE, Intel and so forth. For 10+ years and almost all of them outperformed the market.

I even tried getting rid of the obvious massive tech winners and just relying on stocks like McDonald’s, Coca-Cola, Costco, j&j and GE from 2010-2020 and it just very slightly underperformed the market with 11.71 CAGR vs 12.97 CAGR of the S&P.

But if you do a longer time period of 15+ years this non-tech portfolio actually outperformed the market.

Every time I see studies promoting index funds it always includes comparing the emotional retail investor vs the market. Or the fund managers who aren’t allowed to take risk or have to show quarterly results vs the market.

But I think a more fair comparison are retail investors who also buy, hold and never sell vs the market and fund managers with a long term 10+ years strategy such as the ARK ETFs vs the market.

Answer 1

I even tried getting rid of the obvious massive tech winners and just relying on stocks like McDonald’s, Coca-Cola, Costco, j&j and GE

You used survivor bias to pick your stocks.

• You picked Costco, but didn't pick Toys R Us, Sears, Radio Shack, or JCP.

• You did pick GE, which has had a tough decade but also didn't pick airline stocks.

• Energy companies have been boom or bust as fracking became popular but now with lower energy prices they are struggling. You avoided them.

• You also avoided companies like Theranos.

• You did pick Coca-Cola but didn't pick Hostess Brands

If you pick with an unlucky streak, you might always under perform the market. You might never break even, the peak value could be a few months into your 10+ years of ownership.