The reality is, it was a lot easier in the 1950’s-1990’s to make money with stock picking (as Buffett did) than today, because in the past stocks tended to exhibit what is called ‘Serial Correlation’ (which in layman-speak means the past predicts the future. Two ‘up-days’ will likely be followed by a third, etc.), which made momentum and picking strategies more viable. Nowadays, with the exception of a handful of stocks (like Facebook, Google, and Amazon (all of which I have recommended for years here)), the vast majority of stocks are very erratic in terms of performance. It’s not uncommon for individual stocks to fall 20-50% for no reason or for missing earnings sightly, and then never recover again. This happened with Research in Motion, Sketchers, Kors, Fit Bit, GoPro, Fossil, and Under Armor…the list goes on and on.
And it bears repeating, 95% of day traders become insolvent within five years. Individual stocks pickers, swing traders, and momentum traders don’t fare much better.
In the 1950-90’s individual stocks would rise 1,000% in a 2-3 year period, and then keep the gains. But nowadays it’s very rare for any individual stock to go up more than 200% in a 2-year period, and then, as the prior examples show, the stock will inevitably get chopped to pieces for almost no good reason. This is probably because hedge funds, desperate for any meager ‘alpha’ in what has become an impenetrably efficient market and economy, are chasing the latest ‘hot stock’, only to dump it at the tip of a hat months later. These funds have no loyalty to the company or shareholders and are just chasing bandwagons. Also Buffett has the advantage of special ‘preferred stock’ that ordinary investors don’t get, which guarantees he makes a profit in virtually all possible circumstances.
The S&P 500 has risen over 200% from the depths of the crisis, from a level of 660 in 2009 when it seemed like capitalism was going to die, to 2300 today. The market has much further upside: profit margins and earnings are rising, consumer spending and exports are strong, valuations are still tame, Trump’s spending will provide a further economic tailwind, and interest rates are low. There is no reason to create needless complications by stock picking when one can simply buy the index (such as the S&P 500 or the Nasdaq 100) and make more money with less risk.