Many people ask me why not invest in the NASDAQ Composite Index or even the NASDAQ 100 $NSDQ100 instead of looking for individual stocks. The returns of the NASDAQ has been great over the past few years.
Since I've been investing in March 2016, my average annual return is 18.6% while the S&P 500 $SPX500 returned 11.9% and the NASDAQ 20.3%. I am beating the S&P 500 but not the NASDAQ.
In the first 6 months of investing, my portfolio was down 30%. I was a beginner then and I needed to make at least 43% to break even. That's how the NASDAQ managed to outperform me. I'm not going to ignore the first 6 months, however, since they made me into the investor I am today. But one can still argue that the NASDAQ is doing better than me YTD. Should I invest invest in the NASDAQ? No.
The main reason is because I love playing this game. I invested in Caesars Entertainment earlier this year making 100% in just a couple of months as an arbitrage deal. This is something impossible if I was just investing in the NASDAQ.
We should, however, acknowledge that the S&P 500 is a better representation of the market and although, it may look hard to beat the market with the current returns, this will not go on forever. The main reason why the stock market is going up is because of the Fed printing money. What happens when the Fed leaves? What happens if we have higher taxes? What happens if there are antitrust lawsuits against the big tech?
That's why it is better to look for stocks in my opinion. It is better to look for smaller companies with low correlation with the market. The NASDAQ is in a bubble. Only a few stocks are causing the market to go up. In the short-term, it may look like a good idea investing in the NASDAQ but it may not always go up. People who invested in NASDAQ in 2000 had to wait 16 years to breakeven after the burst of the Dotcom bubble.
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