Annual Returns Tell Investors Very Little


Posted in: Economics, General, Stock Market, Thought of the Week

This week’s Thought of the Week was written by our Chief Strategist, Mike Sorrentino. Mike talks about how unrealistic it is to use one year as a benchmark for investment performance. For instance, Warren Buffett’s company Berkshire Hathaway has outperformed the S&P 500 by over 1 million percentage points, and more than doubled its compounded annual gains. However, if you were to though the lens of annual returns, the story changes dramatically. Buffett has actually underperformed the S&P 500 a third of the years within this time period. Shorten the investment time horizon even closer, and his track record looks even worse.

A year may sound like a long time, but in the grand scheme of things, it is a time period where the most successful investor of all time has underperformed one out of every three attempts. Warren Buffett and other highly successful long-term investors know that annual returns are as meaningless as monthly, weekly, and daily returns.

Take off the blinders that this industry has forced upon us all, and focus on the bigger picture. The bottom line is that trying to beat the market and/or avoid down periods each year for an extended amount of time is impossible, so don’t even try. Doing so only risks doing more harm than good to a nest egg.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.