Why Beating the Market Isn't Enough
Wednesday August 12, 2026
At dinner the discussion drifted into buying the restaurant we were in. After some napkin calculations we settled on a theoretical figure (the restaurant isn’t for sale - this was just a thought experiment.) Restaurants are not that expensive and this one could probably be bought for $3 million including the building and land. Most restaurants rent. This one owns the building.
People don’t seem to understand how much income you have to make to just spend $3 million on something.
Let’s say you have $1 million (because the math is simple and you can scale it) and you make 25% return in a year. At the end of the year you will have $1.25 million. Making 25% in a year would put you in the top few percent of market participants in most years.
Now you have to pay taxes on that $250k which will be between 25-40% depending on how you got there (in the US.) So in April, you will have to pay between $50k - $100k in taxes. You will also have to pay a fine for not making quarterly tax payments but let’s ignore that for now.
This will leave you with somewhere in the range of $150k to $200k in net profit or net income depending on whether you are living off of trading or just supplementing your income as an OnlyFans model or Congressman. This is the income a teamster working in filming makes in half a year of work. Retail chain store managers make this or more.
Now you have to make a choice. Do you withdrawal the full amount for the year (to live on) or leave some in the bank (and gain “net worth”.) It is very difficult to live free-as-a-bird and grow wealth.
Now here is reality.
What happens if one year you fail to make 25%? Let’s say you just are flat. You don’t have pay taxes on gains but you still have to, you know, eat that year. You have to plan and have contingencies.
So now your $1 million falls to $800k - $850k. Unless you want to go the entire year without toilet paper.
Now the next year in order to keep your income the same you have to make a return in the range of 29 - 31%.
You have a 26% of making a 25% return in the market (since 2000) but only 7% chance of making more than 29% assuming you just beat the market if you are just beating the market on the market terms.
If you assume a normal distribution of returns the odds fall to 19% and 14% respectfully.
Now, no one can see the future. So in this scenario you are technically and certifiably a millionaire and high income, but you can’t really live like a “millionaire” can you? You have to understand almost viscerally that the next year might not be as easy as this one.
A lot of people start out thinking they can quit their job and travel around the world from trading. A lot of people advertise this lifestyle to people. Well, they don’t make their money trading and their lifestyle is subsidized by a trust fund or other means.
This is universally true. People who can beat the market understand full well the market is a vampire. There is a hedge fund manager who is trying to sell his house and plane because he forgot this fact.
There are a lot of people who made 100-1000% on small accounts in 2021 who will never be able to quit working because they can’t beat the market in normal market conditions.
Until you get to $4 million and prove you can consistently month-over-month, year-over-year produce consistent results in all market conditions - don’t even think about buying a Lamborghini or chartering flights.
You want consistent returns high enough to grow your account and allow you to slowly increase your income until you are at the point where you can survive two years with no income and a 40% drawdown.
So shoot for $6.4 million and 25% returns. Or just get your dad to give you that amount of money and buy an index fund.
Shooting for 70% returns requires far more work than any job you might want to run away from. Trust me. I am only 15% the way through filings this quarter.
I know people who make in excess of $2 million per year who still live like they are in college because it hasn’t hit them yet that they can relax - a bit.
The people who ran out and bought sports cars all have declared bankruptcy at least once.
It is far easier to marry into wealth than beat the market by 3x consistently. I wish someone had told me this 26 years ago.
There is nothing wrong with marry into money. You will great in whatever she wants you to wear.
— AJ