Talking about market underperformance, there is no golden strategy to beat markets day in and day out.
This is because asset classes and strategies tend to wax and wane through periods of out and underperformance.
As a matter of fact, Warren Buffett's Berkshire Hathaway has lagged the market in one out of every three years. And many a times, the underperformance with the index fund was more than 10% and lasted for a significantly longer period of time. But the fund has emerged as a strong outperformer over the long term.
Berkshire Hathaway has consistently earned 20% for the last 51 years, compared to 10% returns earned by S&P 500 during the same period.
The secret to Warren Buffett's spectacular long-term run-rate is his ability to stomach short term under-performance.
In his own words,
The stock market is a no-called-strike game. You don't have to swing at everything - you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'swing, you bum!
In essence, he means that you don't have to do anything if you don't want to. Rather the focus should be on waiting for the perfect opportunity to strike big.
Today as the stock markets are scaling new highs each day, the need for such an emotional discipline is more than ever.
Data Source: Yahoo Finance, Newfound Research