You are not going to become a billionaire by playing the stock market. It doesn't matter if you're really good and get really lucky. It doesn't even matter if you start out with a relatively sizable fortune. The stock market is good for a lot of things, and investing has a role to play in nearly everyone's financial future, but it's not a vehicle for making billionaires.

Key Takeaways You are not going to become a billionaire by playing the stock market even if you start out with a sizable fortune.

Most billionaires are entrepreneurs, family members or heirs to fortunes from entrepreneurs, or they own businesses.

Even with $1 million in stocks and a 17.7% annual return for 30 years, a portfolio would be worth $300 million, far short of $1 billion.

Understanding How Stock Picking Won’t Make You Billions

Although stock picking won't likely make you a billionaire, it's not impossible to make it to billionaire status. Forbes identified nearly 2,100 billionaires in its annual Billionaire List in 2020.﻿﻿ The world's super-rich come from an enormous range of backgrounds, and plenty started with little or no money.

A few of the top billionaires include:

Jeff Bezos, the founder of Amazon.com Inc. (AMZN), with more than $150 billion in net worth ﻿ ﻿

﻿ Bill Gates, co-founder of Microsoft (MSFT), with $111 billion ﻿ ﻿

﻿ Bernard Arnault and family, Mr. Arnault is the chairman and CEO of the luxury goods company LVMH with more than $110 billion in net worth ﻿ ﻿

﻿ Larry Ellison co-founder of the software company, Oracle Inc. (ORCL) with a net worth of more than $68 billion ﻿ ﻿

We can see that the top billionaires listed have something in common; they created a company and didn't earn their billions from stock picking.

However, Warren Buffett, chairman of Berkshire Hathaway and acclaimed investor is in the top five of the Forbes list with a net worth of more than $79 billion.﻿﻿ Mr. Buffett is probably the best-known investor of all time. The Oracle of Omaha bought his first stock, six shares of Cities Service when he was just 11 years old. He stuck with the markets his entire life, trained under the great value investor Benjamin Graham, teamed up with Charlie Munger. It's a fantastic story, but one that's easy to misinterpret, nearly impossible to emulate, and requires much more than just portfolio management.

How the Super-Wealthy Made Their Fortunes

Most people get the Buffett story wrong. On the surface, the story's protagonist looks like a diligent, wise investor who studied business fundamentals, made good stock picks and rode a wave of above-average market returns to massive windfalls.

Buffett isn't the only example. Carl Icahn (a venture capitalist) and George Soros (who started his own fund) each built billionaire stock portfolios since the 1960s, drawing legions of imitators in the process. Each one appeals to a different subset of investors: Icahn to contrarians, Buffett to fundamentalists, and Soros to the psychology-based investor reflexivity advocates.

You can't follow in their investing footsteps to billionaire status because Buffett, Icahn, and Soros aren't just investors. They are also shrewd entrepreneurs and businessmen with a keen ability to meet shareholder and consumer demands at the right time.

Consider Buffett, whose genius lay in personally evaluating business operations and discovering undervalued opportunities. By the time he was 31, Buffett actively ran seven different partnerships. He personally met with Walt Disney in 1965 before investing $4 million in Disney's company. By 1970, when Buffett was 40, the millionaire dissolved his (now amalgamated) partnership and divested its assets. He became chairman and chief executive officer (CEO) of Berkshire Hathaway, actively flying all over the country to perform valuations and meet with fellow entrepreneurs.

Buffett didn't just study financial statements and submit trade orders. He created a brand, advised up-and-coming companies on their operations, and set up an entire national business network.

Berkshire Hathaway makes money in ways that no individual investor can. This is partially due to the company's incredible cash flow, which lets Buffett cut deals that aren't available to the general public (called "sweeteners" in the trade). In other words, these companies want Mr. Buffett involved as a major shareholder, and they're willing to offer sweet deals to get him aboard as an investor. Those opportunities are just not available for the retail investor.

However, Mr. Buffet didn't simply buy the stocks in these companies; he helped reshape them using the value-investing strategies that he learned from Benjamin Graham. The average investor won't get access to companies the way Warren Buffet has access, nor will an investor purchase a stock at a share price lower or discounted from the market price.

Look down the Forbes list of the 400 wealthiest people, and you'll see that the vast majority of them didn't earn their fortunes by making stock picks alone. None of them were employees their entire careers. Many of them are entrepreneurs or family members and heirs to fortunes from entrepreneurs. Also, most of them own businesses or are partners in multi-billion dollar ventures.

Exploring the Returns of Stock Picking

The S&P 500 returned at an average annualized rate of approximately 10% from 1957 to 2019. It would take an investor more than 24 years of compounding growth to become a billionaire—if they started out with $100 million in equities. Most people (even some billionaires) don't have $100 million to invest in stocks. As a result, you're likely to need a lot more than 10% average annual growth to jump into the billionaire class.

Suppose you perform extremely well and save up $1 million worth of investable assets by age 30, which is no small feat. You then apply all $1 million to the markets and somehow realize the same incredible 17.7% annual return as Warren Buffett's company, Berkshire Hathaway has done. In the end, your portfolio would grow to approximately $300 million by age 65. It's a lot of money, but it's still $700 million short of billionaire status.

If you're a 35-year-old with just $6,000 to invest, you'll need to average about 40% returns each year until you're 70 to become a billionaire. Even if you build an incredibly profitable portfolio, it's unlikely to happen.

The numbers don't add up. Take a realistic, practical look at your stock market expectations. Otherwise, it's too easy to become disenchanted with performance and either stop too soon or get too aggressive.

A Practical Look at Investing and Wealth-Building

Martin Fridson, author of "How to Be a Billionaire: Proven Strategies From the Titans of Wealth" hit the nail on the head when he pointed out, "If you beat stock indexes by 1% consistently for over 20 years, you're a massive superstar."﻿﻿

The numbers have already shown that it's impossible to become a billionaire on this "massive superstar" level performance, at least without a massive head start. Wall Street supplements wealth, and while the few real winners may find a few million on the exchanges, they're largely a tool to beat out inflation or rising prices. Real fortunes—at least, at the billionaire level—are built by entrepreneurs who find ways to put products or services in front of hundreds of thousands, if not millions, of consumers.