TLDR : Successful stock picking, is it possible, who can do it? If not, what other options do we have

Every single person who knows anything about the investing world would know about Warren Buffet. The “Oracle of Omaha”. The billionaire investor who has been picking the right stocks from the age of 11 to his 80s. His partner in crime Charles Munger is in his 90s, has done the same. They started with a relatively very small sum and based on their ability to pick the right stock they were able to generate huge wealth over a period of 70 years.

This chart is nothing short of a miracle in the investing world. No wonder Mr. Buffet is worshipped as the god of investing.

I would like to use this chart to impart two key lessons

• The power of compounding

  • Mr. Buffet had a extremely long runway here starting very early and investing all the way through to his 80s.

  • The magic of compounding has delivered some fantastic results for him. Even a ripe old age of 53 his net worth was around half a billion. But see the progression from that to 83.

  • In that 30 year period his net worth moved from 600 million to 58 billion, (~90X growth) which is incredible.

  • Most of us will never see billions in our lifetime, but if you are able to leverage the power of compounding to get to a similar multiple of growth, start from say 10 lakhs to 9 Crores is nothing to sneeze at.

• There is only one Warren Buffet

  • If successful stock picking is easy, we would have several thousands or even hundreds of thousands of Warren Buffets by now. Why do we hear about just one?

  • Simple reason being, successful stock picking over a long term is very difficult. It is not impossible as Warren Buffet has proved, but very very difficult.

  • Successful stock picking means

    • The ability to pick quality stocks

    • Hold it through its ups and downs

    • Keep the faith through multiple recessions, corrections and down markets

    • Resist the temptation to sell during each bull run

    • Ignore the temptation to chase fads

    • Forget that the “grass is greener on the other side” view

    • Having the conviction to hold on

  • Many investors are able to pick good quality stocks, but they are not able to hold it for the long term to reap the benefits.

  • The average investor’s returns is typically in the 2 to 3% less than the index because of these reason.

What is the answer?

For the average investor, index investing is the simple and easy to follow option.

• It is not fancy - no complicated Jargons or fancy scores

• It is not thrilling - No drastic 10 to 20% move in a day

• It gives you average returns - You will not make 30% in a year, but lose 50% the next

• It is boring - Setup your index SIP and forget it

Use the power of compounding to your benefit.

Conclusion

I am in no way suggesting that you should not pick individual stocks, but rather only get into stock investing with the understanding that the probability of you being as good as Warren Buffet is very unlikely.

What are your thoughts on this topic? Do you think you have it in you to consistently beat the market over the long term and generate alpha? Leave your comments below.