NCPA - National Center for Policy Analysis

What Portion of Investors Consistently Beat the Stock Market?

March 19, 2003

A new study has found that as many as 20 percent of investors may be able to regularly pick stocks that beat the market. Other studies have found that few investors can pick consistently outperforming portfolios.

The study also found:

  • Among the 20 percent of investors who showed genuine flair for picking stocks, the average stock gained 44 percent a year, annualized, over a select period of nearly seven years.
  • During the same period, the Wilshire 5000 index gained 14.5 percent, annualized.
  • Investors who were not so savvy would have been better off investing in an index fund.
  • About 10 percent of the active traders stood out because their stock picks consistently underperformed the market -- with the average stock losing 23 percent, reflecting what the professors called "negative ability."

The study focused on nearly 17,000 accounts in which investors held at least 25 stocks. The database covered trading from the beginning of 1990 through November of 1996. The findings were adjusted for risk and other pertinent factors.

Source: Mark Hulbert, "You Can Beat the Market? A Study Says 1 in 5 Can," New York Times, March 16, 2003.


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