Why Can’t You Outperform the Stock Market?

Warren Buffett, to paraphrase, once stated that he could earn about 50% annually if he only had a few million to invest. While few of us have millions sitting idly, there should be hope for us to at least beat the market. So, what is the problem? There is a lack of available options. Looking at the current investment landscape might give clues as to why retail and other investors lack superior performance in their equity portfolios.

Your current options

The typical options for most retail investors are 401(K) plans, mutual funds, brokerage firms, registered investment advisory firms (your financial advisor), hedge funds, and do-it-yourself investing. Great options so again, what is the problem? Taking the easy one first, Hedge Funds, they simply are not available to the average retail customer due to their accreditation requirements which eliminates most retail customers. Taking on the rest is easy but it is best to save the do-it-yourselfers for last. So, what about 401(k) plans, mutual funds, and your financial advisor? They all have the same problem which is restrictive investment policy statements or limited strategies.

Unfortunately, most 401(k) just offer index or mutual funds and no option to purchase individual stocks and it is for good reason as most do-it-yourself investors fail to outperform the market. Most financial advisors do not pick stocks but push an asset allocation strategy endorsed or created by the Investment Committee. Typically, most institutional investors are not trying to outperform the market but trying to not do worse than the market. Why do most do-it-yourselfers fail? Largely because they have no plan, process, or well thought out investment strategy. Despite all the available tools at the fingertips of retail investors, they still cannot get it done. This is not because of a lack of intelligence but more likely a lack of true passion and interest in the investment management process. To paraphrase, a great investor said, you do not have to do extraordinary things to get superior results and investors should realize that it is more about using common sense.

Better options

The best option for those interested in building a winning strategy is to educate themselves by reading and studying the investment process as much as possible. However, this learning process is one that never ends. If you lack the passion to build your own investment process, then find someone with the necessary skills to build a winning strategy and follow what they do. The only question you should want answered is ‘Does the approach followed make common sense.’ Anything that sounds complicated or that cannot be explained in less than 60 seconds probably will not work. Always bet on common sense! Focus less on the current day, month, or annual return but more on whether the approach makes sense. Find out more about our approach at Investoristics.com and see if our approach is right for you or someone else that you know. We invite you to join “The Collective” where the bets are placed on the fact that common sense makes sense.