Friday, 10 August 2012

Outperforming The Market Is Not Easy

When it comes to investing, picking the right stocks and knowing when to sell, are the two skills that keep investors ahead of the markets, and not struggling to keep up. But how hard an investor tries
 it is not easy to beat the market.

i. Too ambitious to diversify:
Investors often wrongfully think that their stock picks are superior to others and therefore don’t need to hold many in their portfolios. They often refer to diversification as “di-worse-ification” because they believe owning many stocks will cause them to have average returns. Superior diversification strategies are what trump the average individual investor’s returns rather than pure stock picking prowess.

ii. Equaling market returns is an achievement:
In actuality, anyone whose stock market investing performance is matching the market’s returns is doing much better than the majority of individual investors who continue to under-perform the market with untimely trading and too many unnecessary stockbroking commissions.

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