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Who Can Consistently Beat The Market?


There have been countless times when someone has pointed out to me a great investment strategy or stock pick. Someone they know picked a stock that doubled or tripled or even more. They contend that if only they could repeat this their money troubles would be over. Most may or may not realize that is is a matter of luck and not skill. Eventually the ‘lucky’ investment manager runs out of luck. Remember there is NO correlation between a stock pickers success in the past and their ability to repeat.

The truth is someone will always beat the market but it probably won’t be you. Given a 20 – year period, only a small percentage of potential money managers ever beat the market. Unfortunately, no one knows in advance who it will be. Chances are you will be the 95% who lose to the market.

Many of you may remember Peter Lynch, who managed the Fidelity Magellan Fund from 1977 to 1990. He averaged a 29% return during that time. Unfortunately, investors did not know this until it was over. Mr. Lynch stated that most investors lost money in his fund because they bought during high periods and sold during low periods. No one knew he was going to be so successful until he retired.

Another example is the great Warren Buffet, few can argue with his success. However, many could not deal with his volatility. In 1999 during the peak of the tech bubble, tech stock funds earned 100% and sometimes 200%. During this same year Mr. Buffet’s fund lost 15%. Would you stay with him? Now be honest. Or in 2008 the S&P 500 lost 38% Mr. Buffet’s fund lost 48%. The main reason for Warren’ long term success is he had one process, the process he believed in and remained disciplined to that process throughout.

The independent research firm DalBar studies investor behavior with accounts at least $100,000. Their study for a twenty year period dending December 31, 2011 found the S&P 500 averaged 7.81% while the average investor, with or without an adviser, averaged 3.49%.

The lesson is, there only a very small number of managers that beat the market. And even then we do not recognize it until it is over,

You can be a successful investor by developing a prudent portfolio matched to YOUR risk tolerances and remain disciplined. This will reduce your anxiety and you will stop fretting about the short term market movements.

To succeed with investing own equities…..globally diversify….rebalance.

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Comment   |  4 years, 11 months ago from Green Bay, WI