What Can You Expect As Return on The Stock Market?

What Can You Expect As Return on The Stock Market? Manage your Expectations Wisely, and you will maximize your level of happiness throughout life
Social Capital Annual Shareholder Letter

Every morning I go through my emails.

Since the pandemic, many “innovative” traders have offered their investment advice.

Do you want to get rich quickly?

Yes, of course, I want that. Hell yeah.

Pour some millions into my bank account, and I will be free forever and three days.

I bet many of the readers of this article have similar thoughts.

Money is the big problem solver.

It is true money doesn’t make you happy. But it sure does help walking through life in a more relaxed way.

But back to the topic.

Lately, I frequently get the odd “how to make 300% returns on the cryptomarket in 2 weeks?” mails.

Awesome, right?

10,000 dollars in and 40,000 back in two weeks? Sign me up. Of course, the 499 USD fee is of minor importance compared to the big win. It is, in principle, a prepayment from much more money you will make in only a few days.

When you see such emails — delete them and don’t sign up.

Here is why.

Warren Buffett — the longest-serving investor in human history

Charlie Munger and Warren Buffett are two investment grandmasters whose quotes brought insights and delight to novice investors like me.

The first time I heard Warren Buffett's name was back in the 80s. It was a tremendous achievement in a pre-internet world to create a reputation as a US-based investor that resonates in a small city in rural Austria.

The investment approach is simple:

Invest in productive companies that operate in sectors with a positive growth outlook for one or two decades.

Cash-out with dividends, increase in value, and request share buybacks.

Their investment principles worked for decades. What return did it produce?

20 % per year — not more — not less

The S&P 500

What do these two grandpas know about modern times? These words might be the criticism, especially from the young Bitcoin community.

I hear you.

Where do you find modern times factored in?

In my eyes, the world’s best stock market indices, like the S&P 500.

It contains the 500 strongest US companies. Since it is adjusted every year, it represents the modern US economy — which still is the leading economy worldwide.

If that isn’t an accurate representation of productivity and strength, what else could be?

What is the average return of the S&P 500?

about 8–10% per year

Chamath Palihapitiya

Ok. I get it. Bitcoin created a much better return than Berkshire and the S&P 500.

And, of course, every rookie investor can make a Slideshare webinar — the glorious investor has made better returns in the last three days than Warren Buffett, Bitcoin, and the S&P 500 together.

20%, 30%, 50%, 100% and some even 10,000% in no time.

And, of course, there is the mesmerizing return of Bitcoin, which everybody purchased back in 2010 when you got two pizzas for 10,000 BTC.

But what about other human-managed fund structures?

Lucky for us, there isn’t only sarcasm but also prolific private equity investors that are willing to openly and honestly share their performance.

Chamath Palihapitiya is one of those investors. He has been a VC since 2011 and every year issues his annual letter to the shareholders.

Right at the beginning, he shows off the total unmasked performance of his funds.

A gross IRR of about 36% annualized, which most likely translates to somewhere between 20–30% per year return to the LPs.

The length of the track record is much shorter than Warren Buffett or the S&P 500.

Cathie Wood’s Ark Fund

The pandemic was the reign of Cathie Wood amongst the investors.

Her Ark Innovation Fund invests in a novel technology that she believes will shape the world in the future.

During the pandemic, Cathie Wood’s investment approach stood out from the crowd, with a return of more than 150% in 2020. But, and here is the thing, everything reverts to the mean over time.

Deepak Chopra said in his book the 7 Spiritual laws of success:

What goes up must come down

It seems to be an eternal law of gravity. When I check Cathie Woods Ark Innovations' performance I find this number:


The track record of Ark Funds started in 2015.

What about me?

I have loved investing since I was a boy. Apps like Robinhood didn’t exist back in the 80s of the last century.

Getting a brokerage account for the trading stock was next to impossible. So I started playing games and, later in life, started investing in funds that are similar to today’s ETFs.

One of the funds was Select Europe. Since 1999 it returned about 18,9% in total, less than 1% per year.

In 2010 I decided I could do it better than the funds and switched to active trading. After trying out all kinds of strategies, I learned that I feel comfortable with investing in companies I believe in and, on the other hand, doing some Trend Following Strategies.

Dependent on the time of the year, I have an annualized return of between 5–16% per year. You can find my failures and success on Wikifolio.

Better than the 1%, and sometimes better than the S&P 500, but much worse than Cathie Wood, Chamath Palihapitiya, and Warren Buffett.

So what is the takeaway?

The best investors and ETFs provide average returns of

8 to 30%

They all have solid long-term track records.

They give deep and detailed insights into what and why they do it.

They share their failures and their successes.

And have a track record of more than 12 years, sometimes more than 50 or even 100 years.

But of course, the unknown sender of the “webinar-email” to get rich quickly knows it better…

Whenever someone claims to know “the way to more than 100% return per year, at least ask many questions before investing any money.

About the Author:

I love developing global businesses that help improve society based on scientific results.

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