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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Can Individual Investors Beat the Market?

Can Individual Investors Beat the Market?

+5
SL.Market
swan03
Tiger
UKboy
sriranga
9 posters

Go down  Message [Page 1 of 1]

sriranga

sriranga
Co-Admin

There are really two questions here. Can some individual investors consistently beat the market? There is a significant amount of statistical evidence that shows the answer is yes--but the number of those who do so is small. Can most individual investors beat the market? Clearly, the answer to that question is no. If you want to try, here are some things you need to know:

1) It takes more than brains.
Doctors are notoriously poor investors. The same could probably be said for many highly intelligent people. The problem here is overconfidence. An enormous amount of market behavior is due to unforeseeable events. In the short term most of its action is random. Believing that you know more than the next guy may lead you to place too much money in one trade or take on too much risk. Nevertheless a reasonable level of intelligence is required, and basic math skills are essential. If you don't understand basic accounting principles, you'll find it impossible to size up a company's prospects.

2) Insecurity and a tendency to follow the herd are lethal.
Ask yourself a question, and try to give an honest answer. Do you tend to look to authority for most of the solutions to your problems, even when it's not clear the authority knows any more than you do? Do you do whatever your friends are doing and follow the fads? If so, managing your own portfolio is not for you.
To be successful, you need to study your stocks until you're convinced you know as much or more than the pros about those particular issues. You also need to have the courage of your convictions even when the market doesn't immediately confirm your judgment. If you sell every stock that goes down and replace it with one the pros recommend, you'll probably do worse than if you'd been patient-assuming of course that you practiced due diligence in the first place.

3) It helps to be a little girly.
Several recent studies show that women tend to outperform men in investing. Of course, this only applies to women who play the game. Women who succumb to stereotypes about females being financially incompetent or who avoid the stock market altogether undoubtedly do worse. Women who participate in the market tend to do careful research and take calculated risks, whereas men sometimes indulge in testosterone-fueled frenzies of reckless behavior that damage their bottom line. They also tend to trade too much, which eats up profits with commissions and taxes. If, as a recent book title suggests, Warren Buffett Invests Like a Girl, maybe you should too.

4) It takes time.
If you don't have a few hours a week to monitor your stocks and scout new prospects, you're better off investing in broad-based index funds.

5) It takes guts.
Can you stay calm when everyone else is panicking? Can you boldly buy stocks when the market is plunging? If not, you'll have a hard time beating the market.

6) You have to like money, but not too much.
If you don't enjoy having and spending money, you won't be interested enough to do the necessary research, On the other hand, if you place so much importance on money that the possibility of losing any at all makes you break out in hives, you won't be able to take the risks you need to succeed.

7) It takes patience.
In spite of instant trading programs and mountains of available data, stocks get stuck in downtrends that don't reflect their true value and in uptrends that grossly inflate it. If you know a stock is undervalued buy it, but be prepared to wait for your bet to pay off.

Conclusion
Some people can consistently beat the market, but they are in the minority. It takes an unusual combination of personality traits and a significant time commitment to be one of those lucky few.



Edited Article
Source: http://EzineArticles.com/6562271

http://sharemarket-srilanka.blogspot.co.uk/

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics


Again great post Sriranga. Thanks for sharing this with us.

Below is my favourite.

sriranga wrote:
2) Insecurity and a tendency to follow the herd are lethal.
Ask yourself a question, and try to give an honest answer. Do you tend to look to authority for most of the solutions to your problems, even when it's not clear the authority knows any more than you do? Do you do whatever your friends are doing and follow the fads? If so, managing your own portfolio is not for you.
To be successful, you need to study your stocks until you're convinced you know as much or more than the pros about those particular issues. You also need to have the courage of your convictions even when the market doesn't immediately confirm your judgment. If you sell every stock that goes down and replace it with one the pros recommend, you'll probably do worse than if you'd been patient-assuming of course that you practiced due diligence in the first place.

Tiger

Tiger
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Thanks for your valuable articles.

I am quite amazed by the number of responses these valuable articles are getting. Its quiet apparent that many investors are looking for just quick fixes and make money easy style. I believe that if one plays well, CSE will offer billioner opportunities in next 10years. These types of articles help towards that.

swan03


Vice President - Equity Analytics
Vice President - Equity Analytics

You always post good articles. Thanks!

SL.Market

SL.Market
Vice President - Equity Analytics
Vice President - Equity Analytics

swan03 wrote:You always post good articles. Thanks!

Yes

sriranga is adding colour to this forum with providing valuable post...

Great man keep your works going on for public interest

Good Luck

sas

sas
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

thanks sriranga, learning never ends

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics

Sriranga,
Though I have not replied to all of your posts due to time limitations, as I have mentioned many time before your erudite postings are always welcome at the forum. They are very educational and I personally also enjoy them. Thanks

pathfinder

pathfinder
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Good article keep it up!

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Thanks for sharing.

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