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The Equitymaster Research Digest

How to Beat the Stock Market by a Huge Margin
Sep 21, 2016

  • Probably the best strategy for long-term returns
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  • Security analysis cannot presume to lay down general rules as to the 'proper value' of any given common stock. The prices of common stocks are not carefully thought out computations, but the resultants of a welter of human reactions.
    - Security Analysis, Benjamin Graham and David Dodd, 1940

Let's make this very clear: Markets don't care about the 'proper value' of any business on a day to day basis. In the short run, sentiments rule.

But what about the long run? Ben Graham answered that too: 'In the short run, the market is a voting machine. But in the long run, it is a weighing machine.'

What does that mean?

It means that if you are a long term investor, you should buy only the best businesses and nothing else. And then hold on to them. If you give the markets enough time, they will 'weigh' - i.e., value - these businesses more than poor or average businesses.

Fair enough. You'd probably beat the market quite easily if you followed this strategy.

But what if you aren't satisfied with just 'beating the market'? What if you want huge returns from the market?

I want to share with you what is probably the best way to do it.

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