How You Can Beat The Stock Market?
Summary
Be fearful when others are greedy and be greedy when others are fearful - Warren Buffett
Dear Investors,
You often heard many investment managers trying to beat the stock market. You yourself also have tried to reach this lofty goal. Nevertheless, beating the market is extremely difficult. Less than 5% of all funds actually outperformed the market. Warren Buffett's Berkshire Hathaway (BRK) is the few companies that managed to beat all market benchmarks.
As Buffett often said, it's not about intelligence. Being a genius can work against you in the market. After all, you'd tend to ruminate on all scenarios and thereby scare yourself out of the investment endeavors. As such, Buffett would not pick a genius CEO. Instead, the Oracle of Omaha would choose a CEO who is just slightly more intelligent than the average person. Nevertheless, the investment manager or CEO would need to have certain traits needed for success. One such trait is to go against conventional wisdom.
As you can see, you certainly have the mental capital to beat the market. And, chances are that you are smarter than you need to be to beat the market. You simply need to break away from conventional wisdom to outperform in investment. For instance, conventional wisdom often feeds your fear and greed at the wrong time. That is to say, you're usually fearful when you should be greedy. Conversely, you are often greedy when you should be fearful.
Let's look at the latest mega bull market that ran for over 13 years. I bet that during the previous few years, you saw people getting rich in the stock market. Therefore, it causes you to pile more money into the market when you should have taken profits (in anticipation of the decline). By continuously chasing the market, as conventional wisdom suggests, you let your greed run wild - right at the wrong time that ultimately came back to haunt your investment returns.
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One way to guard against being greedy at the wrong time is to implement the?50/50 rule?that I shared with you in the prior article. Precisely speaking, you should take half the profits on your mega winners while letting the rest of your shares ride indefinitely.
In the opposite condition, you tend to be fearful in a bear market. Now, it's natural to be fearful when you see your stocks tumble. That's just how the human mind works. Due to this most powerful human emotion, you'd sell out prematurely at a loss. Here, you need to realize that FEAR is nothing but False Expectations Appearing Real. Your paper loss is only temporary. If you had chosen fundamentally robust stocks, they will most likely rebound and thereby surpass their former high at the next bull market cycle.
All that being said, the choice to buy, sell, or hold is always yours to make. In my view, you should average down on fundamentally sound companies during this time. Amid this special market opportunity, you should ramp up your investment research efforts to uncover more promising companies to invest in. Make sure you buy in tranches rather than going "all in." At the upturn of the next bull market cycle, you'd be glad that you didn't sell and instead you accumulate more shares.
To Your Success In Life and In Investment,
Dr. Harvey Tran
Disclosure:?I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure:?As a medical doctor/market expert, I'm not a registered investment advisor. Despite that I strive to provide the most accurate information, I neither guarantee the accuracy nor timeliness. Past performance does NOT guarantee future results. I reserve the right to make any investment decision for myself and my affiliates pertaining to any security without notification except where it is required by law. I'm also NOT responsible for the action of my affiliates. The thesis that I presented may change anytime due to the changing nature of information itself. Investing in stocks and options can result in a loss of capital. The information presented should NOT be construed as recommendations to buy or sell any form of security. My articles are best utilized as educational and informational materials to assist investors in your own due diligence process. That said, you are expected to perform your own due diligence and take responsibility for your action. You should also consult with your own financial advisor for specific guidance, as financial circumstances are individualized. That aside, I'm not giving you professional medical advice. Before embarking on any health-changing behavior, make sure you consult with your own doctor.