Experts with the best intentions keep echoing these miscomprehensions.

You’ve heard it a thousand times said a thousand ways:

“You can’t beat the market.”

“Most fund managers don’t beat the market.”

“The index consistently outperforms most mutual funds.”

While those statements are mostly true, they’re missing the plot entirely. They’re comparing apples to apples or race cars to race cars. They’re comparing water to water, saying one isn’t wetter as if that’s a useful or meaningful point.

Apples are high in sugar. One apple can have a marginally higher sugar content than another, but they’re relatively the same. Comparing one apple’s impact on a glycemic index to another apple’s impact on a glycemic index, and then shouting one didn’t beat the other, is a waste of everybody’s time. But let’s introduce a can of Coke to that contest. A can of Coke has twice the sugar content as an apple and zero fiber to slow down its absorption into the bloodstream, so consuming a can of Coke will cause a noticeably higher spike in one’s blood sugar level.

If the goal of investing is to achieve a high point on a chart, just like ingesting more sugar spikes a higher glucose level reading, then metaphorically, you can look at a broadly diversified fund or index and take out all of the fiber and replace it with sugar, and you’re going to see a very different outcome.

You can’t beat a broadly diversified strategy with a broadly diversified strategy. And by pointing that out, you’re simply saying “apples aren’t better than apples, so I’m just going to eat apples.” You’re proving nothing. The S&P 500 index has 500 holdings. Most mutual funds have hundreds of holdings. They all have some holdings that are more heavily weighted than others, but once the number of holdings in your portfolio gets into the hundreds, you’re too broadly diversified to be anything other than an apple in a big box of apples. One apple might be shinier than another or have a different price per pound, but you’re all going to achieve relatively the same spike in someone’s blood sugar.

If you analyze all of the companies in an index and eliminate the 98% who’s metrics aren’t as strong as the top 2%, a portfolio made up of those top 2% will perform much differently than the whole index. One will perform like today’s rocket ship, Artemis II, launching toward the moon, and one will perform like a horse-drawn carriage. The risk is that our rocket ship could explode and fall to the ground in pieces. Horse-drawn carriages are far less combustible. But if your analyst has done their research well, they’ve constructed a portfolio of the strongest, healthiest growth companies with the best potential to maintain a monopoly in their diversified market sectors and maintain financial stability as they flourish and thrive, and the likelihood of their collective destruction is low.

A broadly diversified strategy will offer more stability in good market conditions and in bad. A less diversified portfolio will move toward further extremes in either direction. If the economy has projected a positive long-term outlook, then the S&P 500 index should perform reasonably well over the long run. In that same environment, the 10 best companies in that index should perform considerably better.

Now, let’s introduce some high fructose corn syrup in the form of companies that index investors will never have the chance to touch at all: the international ones. The number one best performing stock in our focused growth model last year wasn’t in the index at all because it’s a Canadian company. It was one of our largest positions, larger than any of the largest positions in the S&P 500 index. And some of the largest companies in the index weren’t in our model at all because they didn’t meet our strict criteria for quality. That is how you “beat the market”.

Mutual fund managers do the best they can, but they can only do so much with 300 billion dollars. It’s not really possible to concentrate that much money into just a handful of companies. Our focused growth model invests in just 15 holdings. They’re not equally weighted, but if they were, 300 billion divided across 15 holdings is 20 billion a piece. 20 billion is more than some companies’ entire market capitalization. So the large funds have no choice but to keep adding holdings to their portfolios to find places to stash more of their investors’ capital. This means that while many fund managers are likely talented and capable of beating the market, they are forced to diversify so broadly that they have little chance.

When I hear investors say, “Most fund managers can’t even beat the market, so why bother trying,” I want to assure you that most fund managers absolutely do beat the market, but they do so very quietly in their own private portfolio that you’ll never hear about because their job is to promote the fund they work for.

In the long run, a well-built portfolio that concentrates assets into the highest quality stocks is very likely to outperform an index significantly, because the index is an entirely different strategy. To argue otherwise is to deny the success of the greatest investors of the last century who made their wealth by doing exactly what I’ve just described. They built a strong, well-designed rocket ship, and they held on.

It’s up to you to decide which investment strategy is best for you, but don’t let your decision be influenced by this fallacy that you can’t beat the market, because plenty of experienced, well-trained investors do.