The Stock Market is a Horse Race!

The recent Kentucky Derby was won by a horse named Golden Tempo (GT). One of the big headlines was that GT was trained by a lady, the first female trainer to ever win the Derby. But consider a few other interesting facts regarding this race.

Prior to the race, GT was not a favorite, with 23-to-1 odds of winning.  A total of 18 horses ran the race and at least five of them were ranked ahead of GT as likely winners.  GT also started at post 19, where only three percent of previous Derby winners have started from.  GT ran dead last for part of the race and made an incredible comeback in the home stretch to win.  How did the other four horses do that were ranked ahead of GT? Renegade, winner of the Arkansas Derby, finished second and another favorite finished fourth. The others were in the middle of the pack, so to speak.

So what’s this got to do with the stock market?  In both horse racing and stock picks, there are experts out there daily predicting winners. Some times they get it right.  But often they don’t.  Long shots emerge from the back of the pack and come forward as winners.  For example, 2025 was a good year for the U.S. stock market, with double digit returns in the major U.S. indices. But foreign markets did even better.  This includes developed countries such as those in Europe. But it also includes emerging market countries such as China and India. 

In the last decade, foreign stocks beat U.S. stocks only two years out of ten.  That kind of performance can cause investors to dismiss foreign stocks as a long shot.   But a longer term view of global markets paints a different race.  Over the last 50 years or so, a portfolio holding both U.S. and international stocks outperformed a strictly U.S. portfolio more than 80 percent of the time!

If you bet on GT in the recent Derby, you won big.  A $20 bet paid out around $480.But you had to pick the right horse out of a field of 18.  If you placed a bet to win on any of the others, you came up empty.  If you spread your $20 bet over several horses, you may have had a couple of wins and a few losses. You decreased your chances of an all or none big win.  But you likely increased your chances of walking away with at least some winnings.

The same principle applies to stock market investing.   Betting all your funds on a single stock can pay off big.  But it can also result in losing big.  If you picked Nvidia, you’re happy.  But if you picked Spirit Airlines, you may have to get used to ramen noodles! 

One big difference in horses versus stocks: betting on a horse race is entertainment, especially if you win.  But building your nest egg for retirement is serious business.   Consider the risks of single stock big payoffs versus the slower, steadier progress of a diversified portfolio of investments. And don’t overlook the fact that long shot asset categories often move to the front of the pack!