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There are some things a person just hates to accept. You generally tend to find that in America today, one of those things is Charles Darwin’s Theory of Evolution. The evidence of evolution is overwhelming. Yet it is somehow disturbing to our human hope for the future to think that there may not have been intelligent design, just random events of nature that led to our existence. It is a bleak outlook, but fact of the matter, Evolution (yes, human evolution) is scientific fact… no matter how much you dislike it, it happened.

On a similar note, all of us (including particularly yours truly) like to think that it is in fact possible to beat the market. Whether timing the market or picking stocks, we think there are people (if not ourselves) who can earn higher returns investing in specific stocks than investing in the overall stock market at large through index funds. Well, we can’t. Like evolution, it is an academic fact that essentially no one beats the market over the long run (97% of all professional fund managers earn lower returns than the overall market as measured by the S&P 500 over a three year period, this rises 99% over a ten year period). So, why do we all hold out faith this is possible.

I’ll tell you what makes it especially hard for me. That is the fact I have consistently crushed market since January of 2005 (yes, some serious bragging there, I know). A bit of proof if you take a look at the stock picks I gave in this blog on May 9 of last year: http://www.zittiblog.com/archives/140 and again in this blog on September 2 of last year:
http://www.zittiblog.com/archives/61 and then plot the buy price on those days into some tracking software you will find the following results as of today:

You can see why I have trouble with the theory that there is no theory to picking stocks (as opposed to investing in index funds). The above results show a 34% gain over the period if you would have bought each pick on the dates I blogged them. This compares to the 7% an S&P 500 index fund would have earned. But… the fact remains that there isn’t a theory to picking stocks. The only realistic way for the investor to invest for the best return over the long term is low cost index funds. I will fall over the next several years in all realistic likelihood, just the like big shot you are paying real money to invest your money.

Let it stop, buy low cost index funds, and forget about it. Who has time for stock research anyway? Don’t pick and don’t time. The best time to buy index funds is when you have the money and the best time to sell them is years later when you need the money. And if you want more on the topic of passive investing… check out the excellent podcast The Mad Money Machine over at madmoneymachine.com.

Index fund investing and the theory of evolution… so similar it turns out. And yes, Warren Buffet is in the remaining 1/100th of 1%. Statistics suggest he was just the one that got lucky (tho I still like to think he’s the Oracle).