The phrase "beating the market" is a reference to an investor or corporation seeing better results than an industry standard. With an investment portfolio, a market participant may have managed a return over a specific period of time, such as a year, that surpasses the returns of a market benchmark such as the S&P 500.
The phrase "beating the market" means earning an investment return that exceeds the performance of the Standard & Poor's 500 index. Commonly called the S&P 500, it's one of the most popular benchmarks of the overall U.S. stock market performance. 1 Everybody tries to do beat it, but few succeed.
Beat the Dow
To perform better than the Dow Jones Industrial Average. Many money managers are rated on their ability to beat the Dow with the portfolios they manage. Beating the averages may also refer to the performance of individual securities.
Average investors often underperform the market by 4% to 5% per year, usually as a direct result of their attempts to get better returns. ... Trying to beat the market will most likely result in losing to it, which will make it harder for you to reach your goals, not easier.
Why is it so hard to beat the market? A prime reason is that the skewed pattern of market returns stacks the odds against investors. Typically, a few high-performing stocks pull the average up, while the majority of stocks under-perform.
Investor's Portfolio
The market average can be calculated in many ways, but usually a benchmark – such as the S&P 500 or the Dow Jones Industrial Average index – is a good representation of the market average. If your returns exceed the percentage return of the chosen benchmark, you have beaten the market.
“It turned out that less than 1% of day traders were able to beat the market returns available from a low-cost ETF. Moreover, over 80% of them actually lost money,” Malkiel says, citing a Taiwanese study.
Over the past two decades, Buffett has done reasonably well against the index, actually beating the S&P 500 in 12 calendar years between 1999 and 2020.
Buy on the Dips to Beat the Market
If you never sell, stick to index funds, and buy more when the market declines, you should crush the market's returns. A good strategy is to dollar cost average (purchase no matter what) with index funds every month, rain or shine.
Investors generally fare better in index mutual funds and exchange-traded funds versus their actively managed counterparts. The average investor pays about five times more to own an active fund relative to an index fund. This makes it tougher for active funds to outperform index funds, after fees.
Anyone who starts down the road to becoming a trader eventually comes across the statistic that 90 per cent of traders fail to make money when trading the stock market. This statistic deems that over time 80 per cent lose, 10 per cent break even and 10 per cent make money consistently.
The research shows beating the market is unlikely
Over the last decade indexes (e.g. the S&P indexes) beat their professional manager counterparts, each and every year. Ten year in a row! These stock-pickers' argument has been that they would do better during periods of heightened volatility, or downturns.
A rating of outperform generally means that analysts expect a stock to perform better than the overall market or better than a particular benchmark such as the S&P 500 (a market index of the 500 largest publicly-traded companies).
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