Market Analysis Beating The Market - 1524 Words

Beating the market is a difficult phrase to analyze. An investor, portfolio manager, fund or other investment specialist produces a better return than the market average. The market average can be calculated in many ways, but usually a benchmark, such as the SP 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. Generally speaking, we totally cannot beat the market since investment fees are one major barrier to beating the market. If you take the popular advice to invest in an SP 500 index fund, your investment will perform identically to the SP 500 and investment fees will be subtracted from those returns, preventing you from beating the market. Look for funds with ultra-low fees of 0.1 to 0.2% annually and you ll be close to equaling the market. Taxes are another major barrier to beating the market. When you pay tax on your investment returns, you lose a significant percentage of your profit -15% or more, depending on your holding period. Investor psychology presents a third barrier to beating the market. People have a tendency to buy high and sell low because they re inclined to buy when the market is performing well and they sell out of fear when the market starts to drop. This buying and selling behavior makes it impossible to beat the market. In financial economics, the efficient-market hypothesis (EMH) states that it isShow MoreRelatedThe World Of Stock Investing Essay1514 Words   |  7 Pagescompanies and individuals in the stock market. One such advancement came from the introduction of value investing and the idea of intrinsic value – the underlying fair value of a stock based on its future earning power (Harper). One man, Warren Buffet, led to the rapid growth of value investing due to both his exceptional success and extreme transparency. 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