For the long-term investor, picking "winners" in a portfolio (those that outperform the broader index over a relatively long span of time) can be the difference between mediocre or sub-standard returns, and the ability to beat the market and earn exponential returns over time due to every investor's best friend: compound interest.
Picking a winner is one thing, but knowing when to trim a position or exit, and buy the next "winner" on the way up, is the problem. For example, in the NASDAQ 100 index, only four companies remain out of the top 15 in this index from its 2000 days (less than 20 years ago). Picking and choosing which companies will thrive in the decades to come is tough, considering the turnover indices have all the time, so buying a market-weighted exchange traded fund (ETF) tracking an index is often a great way to go for the average long-term investor.
Instead of picking and choosing which companies in the NASDAQ 100 that would continue to thrive, and which ones to be aware of (some of the top names on this index didn't exist as publicly traded companies or weren't on the radar of most investors), buying an ETF like the Invesco QQQ Trust (NASDAQ:QQQ) would allow investors to automatically re-balance their portfolio over time, with the "winners" auto-selected.
Active investing is great, and should be incorporated as part of a well-diversified investing strategy; that being said, for the average long-term investor, vehicles like QQQ can provide excellent long term stability for the base of one's portfolio.
Invest wisely, my friends.
