Monday, June 18, 2012

Is it possible for average investors to beat the stock market?

Beating the stock market and making loads of money is one of those dreams that seems to many investors to be as pie-in-the-sky as hitting the lottery or winning the tour d' France on a BMX. Sure, they're theoretically possible, but are they even remotely attainable? An optimist would argue that it is possible. After all, beating the stock market is just as much about luck as it is about buying at the right time. Even the most seasoned investors regularly lose money “playing” the markets. By the same token, it can be folly to think that you can “job” the stock market and make a good living sitting in your Pjs with a hot cup of coffee and the Wall Street Journal.

It's far easier to pace the stock market than it is to try to beat it. To keep pace, all you really have to do is scorn individual investments and go with safer mutual funds, particularly index funds which are a way of purchasing stock in every company listed in a stock exchange. That way, you have a better idea of where your portfolio is going just by looking at the financial news. When the market is up, you've made money. When the market is down, you've lost a bit. It's as simple as that. In order to beat the market, though, you have to dig deeper into the rough and tumble world of stock trading. There's more to risk, but there's more to gain, as well.

Simply purchasing stock willy-nilly could get you lucky, but it really is a big risk to take. It's far better to spend the time researching the companies you plan to buy so that you can not just make informed decisions, but make valuable decisions, as well.

Beating the stock market begins by identifying and attacking its weaknesses. The first, and most important weakness is that all the information you need to take advantage of it is readily available while you're still planning to buy stock. By law, companies that are listed on stock exchanges must offer investors a prospectus, and today they are easier to access than ever before. In fact, companies today seldom mail out paper financial forms, preferring to deliver them electronically.

The next weakness of the stock market is that there are pros out there whose only job it is to decipher the nuances of the market and make recommendations on the nature of individual investments. Some of the companies do charge for their investment advice, but some is freely available when you use certain brokerage firms.

The third major weakness of the stock market, and what makes it far easier for you to beat it, is that unlike in previous eras, making trades doesn't take hours or days. There was even a time when you could expect to wait several business days for a transaction to be processed. Today, you can place a trade in one of several ways. For instance, you might set up a purchase or sell order on the stock so that it buys or sells automatically when it hits a certain price point. This is particularly useful for investors who can't spend their whole day glued to a computer screen. Using buy and sell orders is a bit more expensive, but the rewards are much greater.

With enough practice, before long you'll stop seeing the stock market as an adversary that must be crushed, but rather as a useful tool for building your personal net worth as well as your retirement income!

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