In the stock market, we invest hoping that we profit. We hope to profit so that one day we will create enough wealth for ourselves that will let us live off these investments. But, can a regular investor beat the market?
Does a regular investor have what it takes to take on the middlemen and the institutions that have invested millions in the market?
The reason why regular investors fail to beat the market is because they have no knowledge about the disadvantages they face in the market.
Beating the market is a humongous task and the investors in question are regular people working hard every day, trying to earn as much as possible to secure their future. The reason that investors buy securities is because they know something that other do not. But no one can consistently outperform the BSE Sensex.
You might have the right tools as well as the connections in order to take the correct decision. You might research your way through and implement a strategy that complements your research in order to create a diversified portfolio that will result in higher returns. But when it comes to stockbrokers, bankers and other such corporations, they have a bigger outreach and their tools and connections are traditionally better. This put them at an advantage.
People in the financial industry have insider information which they cannot use legally to their advantage and trade but they also have the necessary analysis skills to develop a greater understanding of any company. People will always be lured to try and beat the market because there are people who have beat it consistently and are considered the greats of investing. However, beating the market is a possibility but not a probability.
The sad reality is that an average investor has very little chance of beating the market. That is because the common investor uses mutual funds and pay higher fees compared to stocks or ETFs. Moreover, most MFs do not use stop loss order to protect their gains and often individual portfolios underperform.
However, most investors are taking the responsibility to learn more about their investments. They are taking up the initiative to learn more about how their investments are working. Along with that they are learning that individual stocks are not that intimidating and if one can have access to valuable trading information, and have a sense of how to apply it, then you can easily go ahead and invest directly in stocks.
Retail investors underperform in the market because they intend to beat the market. However, as an investor you should focus on losing less rather than trying to outperform. Regular investors should use their competitive advantage of liquidity to make the more out of their situation.
Big players are tied up by huge investments but you can use your liquidity to buy and sell without affecting the market at all. Systematic risk management can provide better investment performance for regulars.
To achieve success in the stock market as a regular investor, avoid trying to beat it. Try more to use your competitive advantage and increase your returns day by day. This debate is as old as the stock market itself and those who beat the market often preach about their superior analytical skills. But the ones who do not have a different story to tell.