The article below may contain affiliate links from which I may receive some compensation at no extra cost to you. These commissions help keep the site going and can help you on your financial journey. Please read my Disclosure for more info.
Last Updated on June 16, 2021 by Tyler Clark
Who Really Beats the Stock Market?
You may not know this about me but I’m a big golfer. It’s mainly because I can’t do the sports I used to as much anymore but I can still play golf. I hit the range or get out to play as often as I can.
The other day, I got out for a round on a sunny, crisp afternoon. The course I went to was in fantastic shape and I got paired up with a young gent who had a great golf swing.
Our foursome also discovered something else about him on the 6th hole..
He’d recently graduated with a bachelors in finance.
Instantly, the stock talk started up on the sixth green. The other players in our group were asking about Tesla, Shopify, ETFs and so on. We asked if he invested and to be honest, I can’t quite remember his answer but, he did have one of the most interesting things to tell us about the stock market that I’ve ever heard in my life.
After fielding a bunch of questions and comments about the market, the young scholar finally stopped and said something quite shocking:
“Nobody beats the market!!”. -he said.
I thought, you’ve got to be kidding me. I know tons of people that beat the market. Jesse Livermoore, Paul Tudor Jones, Mark Minervini, Peter Lynch-just to name a few.
He continued to discuss that Warren Buffett has really been the only one to consistently out perform the market over the long term. There are many who have outperformed the market over the long term but not matter, I can’t learn anything when I’m talking so shut up, I thought to myself.
We moved to the next hole. It was the hardest hole on the course. Water to the left and trouble to the right. I’ve been in the water enough on this hole so I normally block the left side and fade it to the right. I think we all stayed dry off the tee. I do remember the scholar bringing up another very interesting point in the group’s financial discussion.
He expanded on what he meant by nobody beating the market..
He said that many investors could beat the market here and there but that it was tough to beat the market over the longer term.
- You might make 40% one year but then have only a 2% gain the following year (I’m paraphrasing).
- Another investor could have two 12% years and then a 8% loss the following year.
- The 3rd investor might be a steady eddy with 8% 5 years in a row..
I began to comprehend what he was saying. He was showing that the market itself tended to be a tough opponent to outperform.
Market Beating Examples
That investor that made 40% one year may have a tough time continuing to make that kind of return in the following years. They may not make it again for 5 or 6 years and odds are they will also have a losing year. Now because the market tends to have a fairly strong record over time, eventually, it may catch up to our investor. If they don’t remain astute, the investor may find it harder and harder to outperform the market and be passed by the market’s overall gains as time goes by.
I started to realize our finance major wasn’t saying that investors weren’t making money, he was simply explaining that over time, the stock market itself was making more.
Now some people may see this as a negative.
You may think that if no one, or very few people, beat the market, what hope do we have?
That’s not how I saw it.
I saw this point of no one beating the market as a very positive.
If it’s so difficult to beat the market in gains, that means the stock market is somewhat of a good player.
Think about how many people don’t beat the market-especially over the long term. We’re talking 10% growth on your entire account on average for decades. That’s a tall order to beat with your trading. If it’s not, you must be doing very well and I commend you.
Some people do beat these numbers but they tend to be extremely gifted, dedicated and rare investors. Maybe this is why Buffett suggests that people buy Index Funds as a basic form of investing. He’s seen how good of a player the overall market is and how hard it is to beat it so why waste your time.
If you were looking for an investment specialist to manage your money over time, could you look at the stock market itself? Perhaps. It appears to be one heck of a pro. One would have to weigh the health of the market itself going forward and we know how inconsistent forward prediction can be. None the less, I felt the scholar had made an interesting point.
I talk a great deal about asset accumulation as a common theme among the millionaires. Maybe the Stock Market itself could be considered a powerful asset that grows over time. Our finance major had certainly proven it to be a formidable force over time and had all of the millionaires I trained over the years simply just bought index funds, they’d be infinitely more wealthy today.
Can You Still Win Trading the Market?
Yes. I truly believe you can. And even if you can’t “beat” it, that doesn’t mean you can’t make money in it. If anything, there’s so much more opportunity now. This article is just a great example of one of the many ways you can win trading the stock market.
Take this as your failsafe idea: The market itself is a good bet..
- Does it mean that going forward the market will continue to play like a champ? I don’t know.
- Will the market be stimulated by government and less by investors in the future? I can’t tell you.
- Are the stock markets a possible area to make or lose more than 5% for many years? I’d like to think so.
Whatever the next piece of interesting financial advice is, I’ll probably enjoy it as I did this piece on the dry side of the seventh fairway.
Perhaps you still can learn great things in School and on the golf course.
Best of Wealth,
Tyler.
Leave a Comment
You must be logged in to post a comment.