Beating the market is the most repeated objective among the most reputable investors. The data indicate that although there are many who try, few are those who end up succeeding. In this article we will see the 3 ways that exist to beat the market and which of them is the most appropriate for individual investors.
What does it mean to beat the market?
Beating the market (“beating the market” in English) is an achievement that consists of obtaining a higher return or a lower loss than a certain index in a sustained way over time.
Beating the market is often the goal of many investment managers. For example, Warren Buffett's goal is to outperform the S&P 500 on a sustained basis over time, which he has accomplished extensively in the past decades since he became president of Berkshire Hathaway.
Objective: Beat the market
The 3 ways to beat the market
These three ways to beat the market are based on the article “allegory of Mr. Market, the markets in general and the stock exchanges in particular do not usually act in a rational way. The advantage in these cases consists of acting rationally in the face of irrational actions of the market as a whole. This seems relatively straightforward, but it requires great mental fortitude not to get carried away by the herd effect.
While the above two techniques for beating the market may not be the most suitable for investors in general, beating the market through the use of reason is undoubtedly the most advisable method for individual investors who follow the postulates of value investing.