Knowing the future can make you a billionaire, but it turns out knowing the past can still pad your wallet. Yesterday, we showed that continuously rolling over an initial $1,000 investment in the best performing S&P 500 stock of the next day would have made you a billionaire many times over in 2013. The chance of hitting it rich this way is less than that of winning the lottery multiple times in a row.
However, there was a decent investment strategy in 2013 that required only hindsight: Picking yesterday’s favorite. Someone who started with $1,000 and continuously reinvested it each day into the best-performing stock of the day before would have a balance of $1,196.45 by December 13th, assuming every company allowed investment in fractional shares, and no trading fees. That’s nearly a 20% return, a lot better than leaving the money in a bank account.
As you can see from the chart above, though, this day-late strategy is by no means a guarantee of success; the returns fluctuate wildly. An easier and more lucrative strategy for 2013—though likewise, not guaranteed to succeed next year—would have been to buy an S&P 500 exchange-traded fund on the first day of trading. That would have outperformed the buy-yesterday’s-favorite approach by $44 on the initial $1,000 investment. Take into account fees associated with 241 daily trades and the benchmark large-capitalization US equity index vastly outperforms this strategy. The S&P 500 is up 21.40% this year.