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Stock Picking vs the Index and Berkshire

Stock picking can produce extraordinary results, but Part IV shows how rarely it does.

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The average retail investor trying to pick shares made around 5% a year according to the Dalbar data we cite, which is below the 6.56% rate at which the money supply grew, so the typical picker lost purchasing power even while their balance went up.

Against that, the S&P 500 with dividends reinvested returned 10% a year over 60 years, or 6.1x after M2, without any picking at all. Berkshire Hathaway did far better at 19.8% a year, and what we found interesting is that buying it required no stock-picking skill from the investor either.

  • ~5% a year Average retail investor Below the 6.56% hurdle, from the Dalbar data in Part IV.
  • 6.1x S&P 500 total return, 1965 to 2025 M2-adjusted at 10.0% a year over the same 60 years.
  • 1,027x Berkshire Hathaway, 1965 to 2025 M2-adjusted, compounding at 19.8% a year.

Articles on Stock Picking

1 article from our research on this topic.

Plain-English definitions

Key terms for stock picking

Survivorship bias
Judging a strategy by the winners that are still around while forgetting the companies that failed or were delisted along the way.
IPO
An initial public offering, the point when a company first lists its shares on a stock exchange.
CAGR
Compound annual growth rate: the steady yearly rate that would turn the starting value into the ending value over the period.
Insurance float
Premiums an insurer holds before claims are paid out. Berkshire invested its float, which gave it a cushion and extra funds to compound.
FAQ

Questions about stock picking

Answers drawn from the figures in our research. Educational only, not financial advice.

Is stock picking worth it compared with an index fund?

For most people, our data suggests probably not. Dalbar’s long-running study of investor behaviour, which we cite in Part IV, puts the average stock picker at about 5% a year, below the 6.56% growth in M2, while the S&P 500 total return turned $10,000 into roughly $3 million over 60 years and beat M2 by 6.1x without any choices at all. The winners did exist, Walmart from 1970 being the clearest, but they needed luck at the start and decades of patience afterwards.

Why was Berkshire Hathaway different from picking stocks yourself?

When we lined Berkshire up against the IPO winners in Part IV, using Yahoo Finance’s split-adjusted prices from 1965, its 1,027x M2-adjusted return was level with Walmart’s, but you didn’t need to have spotted Walmart in 1970 to get it. Buffett did the choosing, every dollar of profit stayed in the company because it paid no dividend, and the insurance float gave it a cushion and more to invest, which is why we ended up describing it as a hand-picked ETF.

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