Does this graph debunk the index fund strategy, or am I missing something?
Think of it this way-- buying a stock is a way of saying "the market is wrong, I think $COMPANY is worth more than the price at which it is trading". Unless you have information which the market does not (the next Apple product will be a flop, etc) this becomes, by definition, a speculative position.
Index investing is a way of opting out of the highs and lows of stock picking and still take part in the general growth in a market/sector/<whatever the index cover>.
The story merely points out that for some timespans, the growth of the US markets was crap and that (unsurprisingly when you think about it for a second) returns have varied substantially over the past 50 years even for long time-spans.
TLDR; if you think the US economy will keep growing and don't think you're smarter than marketɫ, index investing is probably still a really good way to go.
ɫ hot tip: you're not
however it is not correct conclusion that you cannot find companies in that market that are not better performers than others - obviously there are companies in S&P500 or any other index that perform better than others for any given period of time. But if you focus on particular set of companies (tech for example) your risk increases since your diversification decreases.
Given your own example, obviously AAPL outperformed market for the past decade. Whether someone could have predicted that is a different question though.
Compared to single stocks, index funds can be more expensive but they offer some more reliability as the diversification is higher (at least for small investors)
Thus, stocks with great long-term returns but poor short-term returns will not be correctly priced by the market - even if it's obvious from well-known information.
An example is when a stock is hit by publicized litigation, that will drain some cash, but not impact their core business. Not only does it look bad, but it will negatively impact their hard numbers... in the short-term.
I remember seeing a 'rolling S&P500 results' page somewhere but can't remember exactly where, [0] is what a quick search comes with.
As you can see in graph [1] there was quite a dip for everyone investing for a period of 20 years between 1974 and somewhere around 1994. That is a 30 year period of a total of 80 years measured with bad returns.
[0]: http://allfinancialmatters.com/2007/06/12/sp-500-rolling-per... [1]: http://allfinancialmatters.com/Graphics/S&P50020-YearTot...
It does seem somewhat difficult to end up on a green square though--there aren't that many of them and there are even fewer long runs.
Does this comment adds redundant noise to the conversation? Really? If you have a good reason to disagree with the subject matter (indices seem less attractive that purported) please share it with us in the comments, I know I'd be genuinely interested.
I would have voted it down before seeing your comment. But apparently this particular misconception is more common than I thought, so perhaps debunking it is actually useful.
and why would that be "the goodness" of index fund strategy? who told you that?
"the goodness" of index funds is that they're low cost and diversified (sometimes) - so more of the returns stay in your pockets, not get handed over to fund managers. return of the over-all stock market has little to do with it!