A small investor is so agile - they can move in and out of positions. Why that agility can't be utilized to outperform a slow moving index fund, long-term?
Peter Lynch famously (he was then manager of the world's largest fund) got out of Gap when he noticed his daughters didn't buy anything there for school and that was his clue that they wouldn't do well next quarter. Gap as had ups and downs since. This is the type of research you will be doing all the time, trying to find a evidence of a company that will disappoint before anyone else knows. This is hard hard hard, and is always a matter of luck. Remember by the time it is public the large players already know and have acted (that is they get alerts the instant it becomes public and are first in line to act on it, technically you get the information at the same time and can act as fast but in practice you will not)
Except being more agile also means eating more fees.
So it should not at all be surprising that index funds perform better than the average investor.
Furthermore, as far as agility is concerned, it doesn't play much of a role in the market. Almost all gains in the stock market over the course of a year come from a handful of days. For example in 2024, just 9 days account for the entire yearly gains.
And you're also saying investor, not trader. So moving in and out quickly doesn't matter as much if we're talking about mid to long term holds.
It also makes sense that those with the largest edge in decision making for trades would collect most of the money.
If the basic hypothesis is that “don’t bet against the U.S.” and that the U.S. long term, always go up, and I’m assuming most of us buy in to this hypothesis because most of us are probably holding an index fund for the S&P or QQQQ long term..
Looking at my portfolio, I just weathered the 2022-2023 storm without even looking. It could have been down 50%, it could have been 90%, I wasn’t selling. I’m all in for another 20 years.
Given that stance, why wouldn’t I just buy and hold a leveraged asset like TQQQ?
You could stomach the 80% draw down?
What are the black swan events for those holdings - I assume they can get margin called?
I can certainly lose a lot of money, the fees are substantially higher than a regular ETF (about 4x higher), and the volatility and constant rebalancing on a daily basis results in a phenomenon known as volatility drag... and yet TQQQ and UPRO have been an absolute killer over the past 10 years.
In my non-tax free accounts I hold unleveraged ETFs: SPY and QQQ.