On our Investing Beginners discussion board the other day, new Fool Community member NickDauber81 asked an interesting question. He introduced himself as a young adult who's learning about the investing world and hoping to make a lot of money in stocks. Below are some of his words, in italics, along with my own, not in italics.
My theory is that the best to way to learn about investing in stock is to just dive in with a calculated and disciplined approach and an explicit valuation philosophy, and just learn to tweak your portfolio according to your mistakes as a neophyte investor.
That sounds perfect to me. I wouldn't want to jump in with all my savings at once, but it's indeed useful to jump in to some degree while you keep learning, if only to make you feel like an involved participant and to maintain your interest.
It's also very promising that he's studying investing masters such as Berkshire Hathaway's
Can small investors succeed?
I am paraphrasing when I say that Peter Lynch once said that the notion of the small-time investor being doomed for failure in the stock market is nothing but a myth. So how real is that quote?
I agree with Lynch. We ordinary folk can indeed make a lot of money in stocks. Here in Fooldom, we've occasionally reported on people of simple means who've saved and invested very effectively and become millionaires.
Check out this snippet from a Rich Duprey article: "Consider the example of individual investor Shelby Davis Sr., who, over 47 years of investing, saving, and investing some more, started with an initial $50,000 investment and ultimately amassed more than $900 million in assets to hand down to his children. He did this by prudently investing money that he earned but did not need to live on; purchasing common stocks in quality companies like American Express, Altria, and Berkshire Hathaway; and holding these stocks, by and large, for as long as he lived."
What to expect
Do you believe or personally know of any small "Joe Schmoe" investors who've picked great companies ... and profited dearly because of it ... maybe to the tune of 30%-50% appreciation per year?
Gee . 50%? Well, I don't know of anyone earning long-term returns that high. If you hear of anyone, let me know! There are some investors who've earned close to 30% over a long period, though I suspect they're few and far between.
Is setting my sights on 30%-40% annual gains on a consistent basis over decades tantamount to pure greed bordering on lunacy, or is it plausible with the guardianship of this online community?
I wouldn't call it lunacy. It's perhaps just unrealistic. That said, I don't see anything wrong with aiming that high. You can hope to achieve those results, and you can work toward that goal. Ultimately, who knows -- perhaps you will get there. Just don't expect to. If you end up achieving even half of what you expect, you'll be well above average. Earning 15%-20% per year would be excellent indeed.
You're also smart to realize that the guidance of our Fool Community can be a real help. Sure, we Fool writers don't own many dunce caps. (Check out how impressive our investing newsletters are -- all of their picks have been beating the market handily, last time I checked.) But you'll find lots more smart and helpful investors on our discussion boards, answering questions, sharing their experiences and research, and introducing us to some great investment ideas. Try the boards out for free for 30 days and see how much they can offer you.
How well the best have done
Just to give you some perspective, here are some (of many) great investors, and their long-term records, as reported in a recent issue of SmartMoney magazine:
- Warren Buffett has grown the value of his company's stock by about 23% per year over the past 40 years. [The magazine cited Anheuser-Busch as a stock that Buffett recently bought and that might be a good buy today.]
- Bill Miller, who runs the Legg Mason Value Trust
(FUND:LMVTX), has beaten the S&P 500 in each of the past 14 years, racking up an average annual gain of around 16% in that period. [Recent Miller buys include Cisco and Yahoo! (NASDAQ:YHOO).]
- Peter Lynch was at the helm of Fidelity's Magellan for 13 years (1977 to 1990) and averaged an annual gain of about 29% during that time. [A screen that aims to reflect Lynch's investing style highlights Aetna as a possible buy.]
- Sir John Templeton's Templeton Growth
(FUND:TEPLX)fund racked up annual average gains of around 14% over a half-century. [A Templeton-like screen turned up Harley-Davidson as a possible buy.]
- And then there's a man named T. Rowe Price, who founded a respectable mutual fund family called, well, T. Rowe Price
(NASDAQ:TROW). According to inacademy.com, Price "published a sample family portfolio to show how he had turned $1,000 invested in 1934 into $271,201 by the end of 1972 -- a compound return of about 15.4% over 39 years."
What the best have in common
Once you catch your breath after seeing just how well these top investors have done, you might wonder what they have in common. Well, many of them subscribe to the "value investing" approach, which advocates seeking out investments that are significantly undervalued. It's the approach that our Inside Value newsletter focuses on, with very promising results so far. Last time I checked, its recommendations' total average return over about a year was 12%, versus 5% for the S&P 500. Out of 28 recommended stocks, five had advanced by more than 40% and about 11 sported double-digit gains. (Try the newsletter for free, and you can see and evaluate all the past picks and check out the new ones, too.)
Let the best invest for you
If you're not up to picking the best individual stocks on your own or even with our help, consider letting today's top fund managers do it for you. A free trial of our Champion Funds newsletter will let you see many outstanding funds recommended by our fund expert, Shannon Zimmerman. You have little to lose and a lot to gain (and learn) by trying it for free.
Learn more about great investors and how they invest by checking out these articles:
- Chuck Saletta: Three Tens for a Twenty
- Tom Gardner: Finding Lynch's 10-Baggers
- Tom Gardner and Rich Smith: Be the Millionaire Next Door
- Peter Psaras and Tom Gardner: Meet 10 Investing Masters
- Nathan Parmelee: Following a Master Investor's Lead
The T. Rowe Price Growth Stock, Health Sciences, New Horizons, and Real Estate funds have all been recommended in our Motley Fool Champion Funds newsletter.
Selena Maranjian 's favorite discussion boards include Book Club , Eclectic Library, and Card & Board Games. She owns shares ofBerkshireHathaway. For more about Selena, viewher bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.