Why you should settle with less but strive for more

There are thousands of analysts, experts, experienced traders, hedge-fund managers, billionaires, scientist and geniuses trying to beat the stock market. What makes you think, that you can do a better job?

We are all trying to pick the best stocks possible, but everybody can’t beat the market. But I think you can beat the market if you settle for less than the best possible stocks.

To simplify this, I’ll define that you can beat the market in two ways:

  1. Beat the global average stock market
  2. Find the best stocks in the world

To beat the market on a global average you need to have a portfolio generating an average returns better than the return of the average stock market in the world. Historically this is about 5 percent per year.

To beat the market by finding the best stocks in the world, you need to find the top 5, 10 or 100 best stocks in the world and keep adjusting the portfolio in a way that you constantly have the best stocks in your portfolio. Every year you can look back and find the best stock from the past year. According to Yahoo the best stock in 2018 in USA was ABIOMED with a return of 120%. 
Easy in retrospect, but an impossible thing to achieve in real life.

The first definition is naturally the easiest one to achieve. The second one is stock perfection and impossible to achieve in real life.

How to use it in your stock strategy

Basically I mean that you should diversify across multiple companies, sectors and countries. This won’t make you the best of the best, but it will generate a good reward in relation to your risk over time.

But when you are buying these different stocks I don’t believe you should settle. On the contrary you should always strive to find the best stocks in the world in that moment looking at future prospects, earnings, potential, price, payout ratio and so on. And since the portfolio is global you should also look at the current price for different currencies.

For an example is the US dollar at a relative high price compared to the danish Kroner right now, but the Swedish krone is relative low. That means I’m looking towards Sweden at the moment to find a good stock. Looking at you Nordea, Hufvudstaden or Essity!

In the end I believe this approach will eventually lead up to you having a stock portfolio generating a good return and with good chance a better return than the average stock market.

Every year there will be stocks, that beats your return, but if you can settle with less, you will be better off in the long run.