How Hard Is It To Pick The Right Stocks? Here's An Example | Exploring Markets

How Hard Is It To Pick The Right Stocks? Here's An Example

A certain chart caught our attention today. It comes from Bernstein Investment Research. It's interesting for a few reasons and if you're someone who likes the stock market or is trying to learn more about it, this is for you.

Essentially, the chart below shows just how hard it is for any one company to become a leader above everyone else. The chart shows how many companies went from making $7 billion in revenue every 12 months to $100 billion every 12 months. It also shows you what companies achieved that growth in 20 years or less. Imagine, for example, if you bought Apple when it was generating $7 billion a year in 2004? Yes, today it makes $218 billion and its stock is up 7,400% since.

Here are some takeaways to think about before you see the chart:

  1. There are more than 5,000 companies that fall into this bucket from the start. Think about that the next time you think you "have to" buy a stock. There are always companies and always opportunities in the stock market. 
  2. But pay attention to how quickly this screen goes from 5,000+ stocks to just 20 stocks. And then 10. Then finally only 6. You need to be patient, selective, and diligent with any single investment you make. There are no guaranteed winners and this shows just how hard it is.
  3. Every investment you make should be put through a similar funnel like this. Don't just pick an investment because... Instead, try to literally see how it could move down the funnel over a certain number of years. You want to find the stocks that are listed at the far right of this chart.