The Best Stock Pickers in the World Work at S&P Global

If you don’t own the best performing stocks, it’s virtually impossible to beat an index.

S&P Global recently came out with their annual SPIVA (S&P Indices Versus Active) report comparing the performance of actively managed funds versus benchmarks.

The report goes into incredible detail but this is the main chart that always catches my attention. It shows the percentage of U.S. equity funds trailing their benchmarks.

The summary is simple: active managers—in aggregate—STINK OUT LOUD. Across all asset classes, more than 90% of funds are losing to their benchmark. 90%!

It was interesting to see only ~10% of Large-Cap Growth funds trailed over the past year. That likely speaks to the dominance of the Mag 7, and clearly most active managers held that group of stocks.

The old quote “nobody gets fired for owning IBM” translates today to “owning the Mag 7 ensures job security.”

So, what’s the takeaway? S&P Global is best stock picking organization in the world.

No active managers can beat the indexes they construct!

I say that a little tongue in cheek, but can you really argue it?

S&P is a $130 billion company that’s been a 5-bagger over the past 10 years.

…and a 15-bagger over the past 20 years.

Clearly, trends in the investment management industry are obvious. Index funds are eating the world, and S&P is a tremendous beneficiary of that.

Even Warren Buffett—everyone’s favorite stock picker—pushes large audiences towards passive investing:

“Consistently buy an S&P 500 low-cost index fund. I think it’s the thing that makes the most sense practically all of the time.”

Now, my intention isn’t to completely dump on active management. It certainly doesn’t have to be all or nothing; there is room for active and passive in a diversified portfolio.

Two thoughts can exist in your head at once.

1) Index funds are awesome. Their secret sauce is that only a few stocks tend to drive the biggest returns, and owning an index virtually guarantees you’ll own the big winners.

2) Owning stocks can be fun and rewarding in a way that ETFs can’t replicate. For example, I’ve spent the last month of my life reading books about QuikTrip, Wawa, and Circle K (gas stations and convenience stores for the uninitiated) to get a better understanding of the industry’s long-term history.

The entire reason I’m doing that is to determine whether I should buy more Casey’s stock: a position I first purchased early last year.

In summary, picking winning stocks is nearly impossible. I am writing about that topic—and yet—I’m still trying to pick winning stocks.

The world’s a funny place.

The most important thing is deciding what mix is right for you and sticking with it. And making sure you understand most of the big money comes from long holding periods—not active buying and selling.

Lastly, I’ll conclude with this: should I be buying S&P Global stock?