Beat the Market!

When you’re in business school, most of your professors will tell you it’s impossible to beat the market consistently. And by Jove they’re right!… kinda…

First of all, what do we mean by “the market”? In general, most finance professors will consider the S&P 500 index to be representative of the broader market as it has 500 companies ranging across all sectors. Below, we can see sector exposure of S&P 500 index ETFs like Fidelity’s IVV.

S&P 500 sector exposure

When you’re investing for the long term, just consistently buying the S&P 500 every month until retirement will likely be a strong plan. It’s passive and easy; and, you buy another share every time you’ve saved enough whatever the current price is. The average retail investor doesn’t have the savvy, time, research, capital, etc, to beat the market.

That all being said, it is possible to develop a system through which an investor can beat the market. Throughout the past year, I’ve steadily been refining principles and applications of portfolio management which are proving very successful. The table below illustrates my recent performance.

TRMC portfolio management performance versus S&P 500

An important aspect to remember is that you don’t have to beat the market, or even come out ahead, every day in order to beat the market on average. This past week was a bit ugly for both me and the market but the higher level growth illustrates by how much it’s possible to beat the market.

The real answer is you can beat the market on average. You may not beat it every day, month, or even year; but, if you beat the market by more than 7% eleven months out of the year, consider how bad your performance would have to be in that twelfth month to come out behind for the year. Assuming we play with our winnings, you’d have to underperform the market by 53% to break even with the market for the year. More likely is that you might underperform the market by a small amount like 2% in which case you’d still beat the market by 107% for the year.

Again don’t expect to beat the market every day. Instead, try to beat the market most of the time and always manage your risk.

Happy Hunting!