Retail traders’ favorite stocks best the market for third straight year
Maybe the “dumb money” knows something.
With 2025 done and dusted, it seems we can say it was another strong year for the individual investors who’ve flocked to stock trading in recent years.
The “seems” above is used advisedly, as there’s no clear-cut benchmark that’s an authoritative measure of individual investor activity and returns. That’s because it’s famously difficult to objectively assess which of the billions of shares that are traded every day belong individuals rather than other forms of investors.
But Wall Street provides a few indicative answers that it was a good year for the unwashed masses.
In a statement issued Friday, market maker Interactive Brokers stated that “individual clients achieved an average return of 19.2%, compared with the 17.9% return of the S&P 500 Index.” (That’s a total return for the S&P 500.)
And Goldman Sachs’ themed basket of stocks the bank identified as “retail favorites” beat the broader S&P 500 for the third straight year, notching a gain of 30.5% compared to the blue chips’ 16.4% rise.
In a note issued earlier in December, JPMorgan analysts who follow activity from retail traders noted that in terms of buying and selling ETFs, retail investors did better than the broader S&P 500 and Nasdaq 100 “to their larger Tech bias and successful risk taking in precious metals.”
And in single stocks, their focus on AI trades put the performance of retail traders far ahead of the broader market, with gains of more than 40% through early December, JPM said.
Much of last year’s success — as avid Sherwood News readers know — stemmed from retail investors’ decision to gird their collective loins and buy the steep dip associated with President Trump’s hard-line tariff announcement that month, using the broader market panic to load up on shares of favorites like Nvidia, Tesla, and Amazon, among others.
While acknowledging the nerve it took to buy that dip, last year’s retail outperformance can’t be attributed to trading savvy alone.
For instance, part of the gains registered by Goldman’s basket of retail favorites is also due to the fact that the prices of such stocks tend to mirror the overall move for the market, but in an exaggerated way.
Known has “high-beta” in Wall Street jargon, this characteristic means that when the overall market is up, these stocks are up a lot more. When the market is down, they tend to take a beating that’s even worse. And last year, the market was up.
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