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Should one try to beat the market?
Mon, 12 Aug Pre-Open

The average investor is actually very unlikely to beat the market. Many people let their emotions (mainly greed, fear and impatience) stop them from doing the right things. Others fall prey to analysts and brokers sales pitches. Still others, unfortunately, just don't know what they're doing. So this begs to ask the question. Should one try to beat the market?

History has shown some investors have made fortunes through what appear to be superior analytical skills. Household names like Peter Lynch and Warren Buffett achieved their successes through picking individual stocks. So if you asked these people how they achieved this, their reply would be something like this. A person should know his/her advantages or disadvantages and should not enter into things which are of disadvantage to them. This seems obvious, but too many investors fail to honestly ask themselves whether they have an advantage.

Entire books have been written on how to gain an advantage in picking individual stocks. It's not a topic for one article. But there are two common factors in picking successful strategies. First - Buy a wonderful business and not just a stock. The fact is that, in the short run, market sentiments drive the stock prices due to which any stock can go up or down, no matter whether it is wonderful or not. But in the long run, the price of any stock is driven by the company's ability to earn profits consistently. Businesses will have a bad quarter or a rocky year once in a while. It's a normal part of being a business. But many people tend to react to a bad quarter in the stock market as if the company is finished. This should be avoided at all costs.

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Feb 23, 2018 (Close)