How to Not Beat the Market

By Published On: 05/22/2021Categories: Financial Planning, Real Estate Investments

Recently I had the same conversation with three different women. I had placed my condo on the market and all three women advised me that there is a) more room in the market for growth, b) opportunities to beat the market.

Losers Game

One of the best books a person can read on investing is called “Winning the Loser’s Game : Timeless Strategies for Successful Investing” by Charles D. Ellis. In the book, Mr. Ellis uses tennis as an analogy to investing. Consider two average tennis players, Brittani and Chris. When the match ends, the person who wins is technically the person who made fewer mistakes than the other player. Average players do not play a winners game, they play a losers game.

Now let’s apply this logic to investing. Let’s say Brittani wants to “best the market” and Chris wants to earn a market return. Brittani spends lots of time making the right decision. They will take extraordinary risks. Chris on the other hand understands that they are in the market with Wall Street and their billion dollar algorithms. Chris knows that there is a greater likelihood that they will win the lottery than they will beat Wall Street.  Instead Chris invests in a low cost index fund and leaves the investment alone.

Let’s fast forward eight years after B and C invest their respective monies. Brittani spent lots of time and made lots of trades in their attempt to outperform. As a result, Brittani racked up trading costs and statistically will underperform the market.  

We can’t control the outcome of our investments. We can’t magically outperform Wall Street. What we can do is control our costs. If Brittani and Chris both earn a market return, who is ahead of the game?

Let’s do some math. Brittani earns a market return of 8% and has churned up 1.5% in transaction/trading costs. Chris earns a market return of 8% and had an expense ratio of .02%.  While Brittani walks away with a 6.5% return; Chris proudly enjoys their 7.8% after cost return. 

Investing is a science. 

Investing is not a competition. Invest responsibly based on your tolerance for risk, frequency and timing of your cash flow streams, your timelines and your overall net worth. Do not try to beat the market. Do not try to time the market. Create an investment strategy based on logic and science and then execute your strategy. At the core of this strategy should be your decision to earn a market return at the lowest cost possible. 

Studies show that women investors tend to outperform male investors. Ask me why and how!

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How to NOT Beat the Market

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