A trader works on the floor at the New York Stock Exchange in January.Brendan McDermid/Reuters
Every market cycle produces its celebrities.
Someone “called” the top. Someone loaded up on the right stock at the right time. Someone turned a small account into a big one with a handful of lucky trades. The media loves these stories because they are simple, dramatic, and easy to package as inspiration.
The problem is not that these stories are false. The problem is that they are incomplete in a way that can be genuinely dangerous.
When we spotlight a one-hit wonder and ignore the multitudes who blew themselves up trying the same thing, we are not informing people. We are selling lottery tickets disguised as financial advice.
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Winners are rare, and the math is not intuitive
Here is a basic fact about markets that most people never learn: Long-term wealth creation is incredibly concentrated.
U.S. economist Hendrik Bessembinder studied roughly 25,000 U.S. stocks going back to 1926 and found that the majority of individual stocks delivered lifetime returns that were worse than those of a short-term savings account. Even more striking, the best-performing 4 per cent of stocks explained the net wealth creation of the entire U.S. stock market over that period.
In other words, most stocks did not beat cash over their full lives. A very small number did the heavy lifting for everyone else.
This is not an argument against investing. It is an argument for humility and diversification.
If wealth creation is driven by a small fraction of companies, then “I picked a winner once” tells you very little about whether the process is repeatable. It mostly tells you that luck exists. Was Ice Ice Baby a work of art, or did Vanilla Ice just manage to strike the right cultural chord one time?
One-hit stories ignore the graveyard
Media profiles almost always start after success is already visible. We do not see the thousands of people who tried the same trade, in the same theme, with the same confidence, and ended up as a cautionary tale. Actually, they are only a cautionary “non-tale” – they do not get interviewed because they are embarrassed, broke, uninteresting, or all the above. Their silence makes the success look more common than it is.
The implicit lesson readers take away is simple and wrong: If I am smart and quick, I can do that too.
Research consistently shows that the kinds of investments that generate extreme short-term excitement tend to deliver disappointing long-term results. Stocks with lottery-like characteristics, meaning extreme upside paired with a high probability of loss, have been shown to underperform on average. These are exactly the types of investments that dominate headlines and social media when they work.
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Even professionals struggle to repeat success
This issue is not limited to DIY investors. Professional investing is full of one-hit wonders as well. A prominent investor makes the right call at the right time. A fund has a great run. Assets flood in. Performance fades.
Just ask Michael Burry. The famed investor, profiled in Michael Lewis’s The Big Short, has remained in the headlines for nearly 20 years following his prescience during the financial crisis of 2008/09. Is he some kind of seer, or did one great call and an equally great story propel him to fame that can’t be sustained? Here, we can turn back to math. If we have thousands (probably tens or hundreds of thousands, actually) of investors making bold predictions, some are bound to hit the occasional grand slam.
S&P’s persistence data illustrates how difficult it is to stay on top. In a recent persistence scorecard of active U.S. equity funds, not a single one of the best-performing 25 per cent of funds in 2022 remained in the top quartile over the next two years.
That does not mean professional investors are incompetent. It means markets are competitive, outcomes are noisy, and repeatability is hard even with resources, data, and experience.
So when media coverage implies that individual investors can reliably replicate narrow, high-volatility success stories, it is promoting confidence without probability.
What responsible success stories would include
Profiling success is not inherently wrong, but it requires context.
A responsible investing story would answer a few basic questions:
- How common is this outcome, really?
- Was the success repeatable over multiple cycles, or was it dependent on one trade, idea or time period?
- What risk was taken to achieve it? (Leverage, concentration, options, margin.)
- How many people tried something similar and failed?
- What would a disciplined, boring alternative have achieved instead?
That last point matters because the alternative is not missing out. The alternative is building wealth without needing a miracle.
The bottom line
One-hit investing stories are not harmless entertainment. They shape behaviour. They encourage people to confuse luck with skill and speculation with investing. They push readers toward strategies that look easy in hindsight and painful in real time. Sorry, but your enjoyment of one-hit wonders should be limited to listening to Gangnam Style, watching The Sixth Sense, and reminiscing about Leicester City’s 2016 Premier League title.
If you want the most reliable path to good outcomes, it is not about finding the next one-hit wonder. It is about building a portfolio that does not require heroics, and then sticking with it through the parts that feel uncomfortable.
That rarely makes headlines. But it works.
Josh Sheluk is chief investment officer with Verecan Capital Management Inc.