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Make no mistake. As Ray Dalio, the famous founder of the largest hedge fund in the world, Bridgewater, says: “Competing in the stock market is more difficult than competing in the Olympics”.
For that reason, investing in an index fund like the SPDR S&P 500 ETF or the Invesco QQQ Trust Series 1, alongside investing in individual shares, can help, in my opinion.
After all, the S&P 500 average annual return is 10% over the last 30 years, which is good!
However, I’m brave and invest only in individual companies.
While I might find it hard to get better results than an index fund, picking shares helps me learn about balance sheets, income statements, and cash flow.
And as a Fool, I think I can achieve better returns than index funds over time.
To help, I looked at how the greatest in the world do it; I wanted to know their strategies.
1. Warren Buffett
Warren Buffett is the most famous investor in the world; he has achieved an average annual return of 20% since the mid-1960s.
Lots of people know lots about him, so I’ll focus on some wisdom that may be unique.
My number one takeaway from this titan is understanding market psychology.
As an individual stock picker, I’ll always invest with the herd if I don’t have control of my emotions and firm discipline.
My research and experience show me that Buffett is right. I think significant profits come by investing against what everybody else is doing.
Everybody sold off during the pandemic? That was a great time to buy, in my opinion.
However, it’s not that easy to be correct. There’s no guarantee buying at low prices means high prices will come again.
2. Peter Lynch
Peter Lynch was the manager of Fidelity’s Magellan Fund from 1977 to 1990. His average annual return was 29%.
He proposed that the best way to invest was to “invest in what you know”.
This simple philosophy of looking for investment opportunities in everyday life speaks wisdom to other investors who have more complex and mathematical approaches.
Unfortunately, many investors who focus on complex methods still attain less than 10% per year returns.
Of course, there are better strategies than buying the shares because I like a product. Like Lynch, I analyse the financial statements to ensure I’m investing in something financially sound.
He has many good books that have taught me a lot, including One Up On Wall Street.
3. George Soros
I disagree with George Soros on investment strategies, but he made some of the highest annual returns in the world.
His Quantum Fund, founded in 1973, achieved an average annual return of about 20% over its lifetime.
Soros used high leverage and made intensely unconventional bets. Most famously, he shorted the British pound in 1992 and made over $1bn.
Leverage and short-selling come with immense risks, including accumulating life-shattering debt.
Can I reach 20% returns?
I think I can beat the S&P 500 average return, but I don’t think it’s easy.
By accustoming myself to a deep understanding of financial statements, I think 15% annual returns for me in the future isn’t impossible.
I drive hard daily to become a better investor, analyst, and writer. What if 20% returns happened for me?
