Beating the S&P 500. Why Can't the Majority of Money Managers and Hedge Funds Do It?

Try to make a list of money managers who beat the S&P 500 for ten years or more and you will come up with a real short list. In fact, it is believed that over 90% of money managers can't beat the S&P 500 over a one decade period. And many money managers who beat the S&P 500 over a period of time end up underperforming afterwards. 

In fact, if you want to beat the vast majority of Wall Street, simply put all your money in the S&P 500 ETF (SPY) and reinvest the 1.67% annual dividend. At the end of a decade, you will find yourself doing better than most of the people who manage money for a living. 

Here are some of the reasons why most people can't beat the S&P 500

• Simple Greed - Too many people want to get rich really quickly. And it becomes a compulsion to become rich over night. That leads people to overtrade and statistics show that the more someone trades, the more likely they are to lose money.
• Money Managers and Hedge Funds have to look productive - If a money manager simply put all of their client's money in the S&P 500, they would instantly be in the top 10% to 20% of all hedge funds. However, they would also lose many clients because they would be perceived as lazy. The drive to over-trade is yet another poison that hurts many funds. 
• The addiction factor - The fact is, stocks trading can become like gambling. And gambling taps into our primal greed and fear components in our mind. Even though we are humans, at our core, we are animals. And animals have a primal need to attack and become the alpha/dominant animal in a pack. Those factors can cause people to trade out of greed and as well as fear.

Good trading may lead to outsized returns. However, if you simply want to beat most of the market, just invest in the S&P 500. Even if the S&P 500 is down 20% after twenty years, you will still be better off than 90% of Wall Street.