- More optimism baked into UK valuations
- Follow signs to do your own research
Markets for large cap stocks tend to be information efficient: important company news reaches all investors at the same time and a good story is rarely overlooked. Over the long-term this ought to make it harder for stock pickers to beat the market. This feeds the argument for passive funds that track a benchmark index, reinvest dividends and let the power of compounding work its magic.
UK stocks have delivered a real (after inflation) rate of total return that smooths out to 5.4 per cent annually since 1900 (source: UBS 2024 Yearbook, Dimson, Marsh and Staunton). However, in any given year some stocks will be star performers and the prospect of outsized returns from picking winners remains a powerful incentive to active investors.
