STOCK PICKING AND OVERCONFIDENCE

Stock market collapses like the one in 2008 create fear in all of us. Some people were so afraid that they sold all their stocks near the bottom and decided to avoid stock investing altogether.

That was a costly mistake.

In the 17 years since the end of the financial crisis, the S&P 500 has grown at an average rate of approximately 14% per year—one of the best 17-year periods in market history.

Fear is dangerous when it comes to investing. But so are greed and overconfidence.

After the last few years, many investors are feeling pretty good about their performance. Stock market returns for 2023, 2024, and 2025 were excellent—one of the best three-year periods in history. My go-to index funds remain the S&P 500 and the Nasdaq-100. Just look at these remarkable gains.

INDEX FUND PERFORMANCE (2023–2025)

Year	S&P 500	Nasdaq-100
2023	26.3%	54.9%
2024	24.9%	25.6%
2025	17.9%	20.8%
Total (Not Compounded)	69.1%	101.3%
Compounded Return	86.0%	135.0%
3-Year Average Return	22.7%	32.4%

Banking these kinds of gains is fantastic and does wonders for our retirement accounts. However, we must be careful not to overreact and let greed take over.

The average annual returns during this three-year period were roughly double what we should expect over long-term market cycles. History shows that periods of exceptional outperformance are often followed by periods of underperformance, bringing long-term averages back toward more normal levels.

Overconfidence can lead investors to chase returns—and that often results in major mistakes. Overconfident investors lose discipline. They begin to believe that recent high returns will continue indefinitely and take on too much risk at exactly the wrong time.

Many of you have followed my recommendations over the past few years and generated tremendous gains. Several of you have told me that you made more money in the last three years than in your entire investing lives. That is incredibly gratifying.

The best investors do not make emotional decisions. They don’t panic during downturns or get carried away during market surges. The best investors are prepared for all possible scenarios.

Many of you have also shared that your recent success has sparked a deeper interest in investing. You’ve been reading my articles and books, along with content from other investment strategists. That’s terrific. The more educated you are, the better your investment decisions will be.

Recently, however, I’ve noticed that some of you are experimenting with buying individual stocks. While this can be educational, it also carries a significant risk—overconfidence.

We can all feel like investing geniuses during powerful bull markets when nearly everything is rising. Anyone who owned some of the “Magnificent Seven” stocks over the past five to ten years made a lot of money.

But investing in individual stocks is a very different—and far riskier—game than owning diversified index funds like the S&P 500 or Nasdaq-100. Individual stocks can, and often do, suffer far greater losses during market downturns.

During the 2022 bear market, the S&P 500 fell by about 23%. Many Magnificent Seven stocks dropped more than 70%. Even Nvidia declined by 64% that year.

Despite that decline, Nvidia still produced average annual gains of roughly 70% over the last five years. But that is the exception, not the rule. For every Nvidia, there are dozens of stocks that produced devastating losses.

Before adopting my investing system, many of you were earning annual returns of just 5% to 6%—typical for most retirement investors. Without a system designed to protect capital during severe bear markets, investors are forced into bonds and other low-return assets. Fear of losing money was holding back your results.

Since using my system, many of you have increased returns to nearly 20% per year in recent years. That’s outstanding. But it’s critical not to become overconfident or assume that investing is easy. The strong gains of 2023, 2024, and 2025 may look effortless—but they must always be viewed alongside difficult years like 2022, 2008, and 2001–2002.

Sum of losses:

3-Years 2000 to 2002             -46.5%

5-Years 2004 to 2008              -9.4%

Short-term results—whether one, three, or even five years—don’t tell us much. Market returns don’t truly stabilize until we examine 15- to 20-year periods.

For individual stocks, volatility is even more extreme. In 2025, only two of the Magnificent Seven stocks—Google and Nvidia—outperformed the S&P 500. The other five (Apple, Microsoft, Amazon, Tesla, and Meta) averaged gains of just 10.5%, compared to 17.9% for the S&P 500.

Fewer than 1% of the smartest, most experienced, and highest-paid professional investment managers can beat the S&P 500 over 20-year periods. Do you really believe you can consistently outperform them by picking individual stocks?

Any stock picker can get lucky over short timeframes. But sustaining superior results over decades requires extraordinary discipline, skill, and several hours of daily effort—something very few people possess.

I understand the appeal. Picking stocks and hitting a winner is exciting. The adrenaline rush is similar to gambling, where the odds are far worse than in the stock market.

Many people enjoy dabbling in stock picking. Compared to that, my investing approach may seem boring—even though it produces better long-term results.

If this sounds like you, consider yourself a stock-picking hobbyist. There’s nothing wrong with that—as long as you don’t put a large portion of your wealth at risk.

When I encounter hobbyists, I recommend limiting stock picking to less than 5% of your retirement nest egg—or using non-retirement “play money” that you can afford to lose. With only a small amount at risk, stock picking can’t do much damage.

Over 20-year periods, hobbyists should expect average returns of roughly 6% to 7%, accompanied by occasional big wins and painful losses—a roller-coaster ride. Some will even lose money in the long run if they bet on the wrong stocks.

Most hobbyists eventually give up. They tire of the effort and grow frustrated by losing picks.

The overconfidence and greed that follow excellent market years—like 2023 through 2025—can lead to painful mistakes. Resist the temptation to take on more risk in pursuit of a few “hot” stocks. Remember, when you own S&P 500 or Nasdaq index funds, you already own Nvidia, Google, and other high-flying companies.

Slow and steady wins the retirement investing race.

Stay Disciplined My Friends,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.