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3 Reasons You Can Beat Wall Street and Actually MAKE Money

November 4, 2019

Hi! And welcome to the latest episode of
The Motley Fool’s Bottom Line series. In this video, we’re going to take a look
at three reasons why most professional investors can’t beat the market. While some investors feel perfectly comfortable
being the purveyors of their own financial destiny, many turn to professional money
managers to grow their wealth over time. The assumption is that money managers know the ins
and outs of how to make their clients rich over time. But the data tells a different story. Since 2001, the S&P Dow Jones indices has
released its annual SPIVA U.S. scorecard report, which examines the performance of fund managers
relative to their most closely linked benchmark index. How does Wall Street stack up? Well, let’s just say a blind coin flip might
give you a statistically better chance of beating benchmark indexes. Over a one-year clip, 68.8% of all domestic funds
underperformed their respective benchmark index. And things look really bad when the performance
of fund managers is examined over the long-term. Over the past 15 years,
a whopping 88.9% of domestic funds have underperformed
their respective benchmarks. Why are fund managers so bad at their job?
There are likely three reasons. The first reason is that many fund managers
are too focused on the short term. Research shows that an average of five out
of every eight stocks in a domestic fund are being changed out every year. That suggests some
very short-term and emotionally-oriented thinking
on the part of money managers. The problem is that it’s impossible to predict
with any long-term consistency what’s going to influence the
stock market in the short term. According to annually released research from
JPMorgan Asset Management, a majority of the S&P 500’s best trading days often occur within
two weeks of its worst trading days over a trailing 20-year period. Timing those
days is an impossible task. Yet, based on the 63% average domestic
fund turnover rate, that’s exactly what money managers are trying to do. Secondly, many professional money managers
fail to recognize a bad investment. Back in December 2016, The Economist examined
all equity ratings for companies in the S&P 500 and found that 49% of all stock ratings
were the equivalent of a buy or outperform, with another 45% being
some equivalent of hold or neutral. This means that a mere 6% of all S&P 500 stock
ratings were a sell or underperform in 2016. Meanwhile, about half of all S&P 500 stocks
underperformed the index that year. Some money managers may be wary of giving
stocks a sell rating so that they aren’t labeled by their peers as a fear monger and so that they don’t
burn bridges with the companies that they cover. But as the data shows, fund managers aren’t
doing any favors by allowing their bias towards buy ratings to influence
their investing decisions. And finally, the third reason why most fund
managers fail to beat the market is because there’s no true accountability. Since fund managers generate their own income
from upfront fees, the performance of their portfolio often has little
long-term impact on their wallets. The bottom line is that if a fund manager
underperforms the market, the only one who walks away a loser tends to be the
investor who put the money into the fund. Thanks for watching this video! Do you think fund managers
can help investors beat the market? Let us know what
you think in the comments below. If you liked this video, give it a thumbs
up and click the subscribe button — it helps us reach more people,
which allows us to make more awesome content.


  • Reply GenExDividendInvestor October 22, 2019 at 6:06 pm

    As long as you consistently invest in quality companies over the long term, with a buy-and-hold strategy, you will do great. Sometimes you will beat, sometimes you won't, but either way you should end up wealthy after a long time ๐Ÿ™‚

  • Reply Faisal Hanif October 22, 2019 at 6:12 pm

    Individual investing beats funds, if you have the right set of knowledge, skill and most importantly PATIENCE …

  • Reply Marty D October 22, 2019 at 6:22 pm

    Anyone can learn to invest on their own!

  • Reply turiq amin October 22, 2019 at 8:27 pm

    The title says. Can beat the market but the video says CAN'T so this video is click bait which is some.bullshit cuz im tryna get rich and i thought this video was gonna give me a few tips or some game on the stock market

  • Reply Emotional Trader YT October 22, 2019 at 8:41 pm

    I learned from a guy named Jordan Belfort..Maybe you heard of him…

  • Reply Kenneth Ferrara October 22, 2019 at 8:55 pm

    It's better for you to lose your money then allowing some stranger…

  • Reply Dividends_with_Alisher October 22, 2019 at 8:56 pm

    If you have enough knowledge and don't follow the crows you can beat, just have to be patient and mentally strong!

  • Reply smokinsnake October 22, 2019 at 9:08 pm

    Risk management…always protect your money….STOP LOSS on the backend.

  • Reply happy larry October 22, 2019 at 9:25 pm

    the reason why 70% of fund managers cannot beat SP500 is because they are salespeople not actual market wizards

  • Reply Investing Education October 23, 2019 at 12:36 am

    Beatin the market consistently is the holy grail for investin

  • Reply EP Emsley October 23, 2019 at 1:33 am

    Invest and forget.

  • Reply Nolan Abell October 23, 2019 at 2:24 am

    This is why nobody should take analysts seriously, Iโ€™m only going to school to be one so I can use the money to build my account till I can retire by covering my annual expenses with dividends

  • Reply Ace Hardy October 23, 2019 at 4:08 am


  • Reply Metacognition88 October 23, 2019 at 7:11 am


  • Reply Boba Squid October 23, 2019 at 9:35 am

    *Better your money than mine *

    Every fund manager's motto.

  • Reply Monish Kumar October 23, 2019 at 5:08 pm

    Extremely Impressive, I compleatly enjoyed it!, See this New Album 'Monish Jasbird – Death Blow', channel link , you might like ๐Ÿ™‚

  • Reply uSplashCAE October 24, 2019 at 10:00 pm

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  • Reply Christine Molling October 24, 2019 at 11:39 pm

    Get a CFP via Dave Ramsey, where extra certification, proven good charactor and experience, along with accountability is required. Working with an CFP to put together a portfolio that is the right investment mix for your age, earnings, and life style, among other factors is very important. I am not a CFP or advisor. My investor works with (not for) SEI to manage one's portfolio. Google SEI to check it out. If your investor isn't able to correctly answer the questions that the Wall Street Journal has to ask a potential investor, then move on. Also, see for checking out the history of the CFP you are potentially looking to work with. This article is good, but there are many more factors to consider before throwing out the baby with the bathwater.

  • Reply Bob Piotrowski October 25, 2019 at 5:53 pm

    I own index funds (Vanguard) and managed ones (non-vanguard) for years. The managed ones have under performed the index funds over the 26 years I have owned both.
    PS: I'm a MF SA subscriber and have done very well with their recommendations.

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