Good vs. Great vs. GOAT Investors: Defining the Differences in Stock Picking Success

During their recent episode, Taylor, Carlisle, and Ian Cassel discussed Good vs. Great vs. GOAT Investors: Defining the Differences in Stock Picking Success. Here’s an excerpt from the episode:

Jake: Ian, I think you prepared a little something for us that was about the differences between good investors, great investors and then greatest of all time investors?

Ian: Yeah. I started journal this about this a night or two ago. This is a very rough thought process.

Jake: That’s all we do here. It’s just very rough stuff.

Ian: Yeah. It’s very rough and very wrong.

[laughter]

Tobias: It’s a good place to start. Let’s do it.

Ian: Yeah, exactly. But I think I’m right. But I do find it interesting when you think about sports, or stocks or even stock pickers themselves, the difference between good versus great versus goat, greatest of all time. That’s what got me started journaling a little bit. I think it’s hard to have a conversation like this without defining what good, and great and goat even mean.

And for this, I’m mainly just talking about difference between great and goat. Again, this is completely subjective. But I would say a great stock picker is an active manager that beat the market for 15 years. That’s a decent amount of time. We could argue whether that’s 10 years or 20 years, but it’s hard to fake it until you make it for 15 years and still beat the market. So, I think it’s a tough 15 years, because our starting point is, what, the low in the market.

Jake: Yeah, you only had a half a cycle, really.

Ian: Yeah, exactly. [Jake laughs] So, I think the average CAGR on the S&P for 15 years is, I don’t know, I think it’s like 14%.

Jake: 15%. Yeah.

Ian: 14% or 14.5 or something like that. But let’s just say to be great, you would have to beat that. So, let’s call it 15% net over 15 years. When you actually look at the statistics, and I think Alpha Architect actually did some of this, but I was trying to look at some of the data points. I think it’s roughly 5% of active managers beat the market over 15 years, which might surprise some people, probably not us, just because when we’ve heard about that narrative before too. It’s hard to beat the market, obviously. So, that would be great. Let’s just call it a 15 net return, annualized return for 15 years.

On the goat stock picker side, I define that as somebody that has beaten the market by 500 basis points or more over those 15 years. So, taking that 15% net CAGR up to 20%. That is a big leap and it’s meant to be a big leap and it’s probably 3% or 4% of even the great stock picker band fits into that category. So, great 15% annual returns, goat 20% over 15 years.

I’m thinking about this. What are these great and goat stock pickers doing to beat 95% of professional active managers, both those categories? They’re beating 95% of active managers. What are they doing? Last year in August, I gave a presentation talking about the skills of stock picking. Maybe you can put in the show notes. But what’s interesting about this presentation is I think a lot of people read the title, The Skills of Stock Picking, and their eyes glazed over thinking that it was going to be invest like Ian presentation, bore him to death, that type of thing.

Jake: It’s all accounting.

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