Beating the market means earning an investment that is more than the performance of Standard & Poor’s 500 index, abbreviated as the S&P 500. Everybody tries to beat the market, but only a few succeed.
It happens when you earn better than the yearly average of the stock market. Market experts used the phrase recommend the stock for outperforming any market.
Here are a few tips for beating the market
1. Diversified Portfolio
The best chance for an individual to outclass market is through a diversified financial portfolio. A good strategy is to purchase eight different assets that react differently to the economic cycle. For example, when the financial system heads into crisis, some of your assets will rise in value like gold. They will balance those assets that drop due to economic turmoil like oil.
When the market is going downward, put all your money in gold. When the market is going upward, invest in items like oil and stocks. However, timing is essential for such an investment. Without the right timing, this will not benefits you much. The bear and bull market is also not easy to predict. One way to know boom and economic meltdown is by reviewing the economic trends since 1980.
Keep the right eye on market indicators. Usually, such economic trends do not happen overnight. They take time. A market can crash suddenly, or rise due to political or other factors. With diversification, you can slowly shift assets with time. That’s the best way to outsmart the market.
2. Buy Stocks with Low Price-to-Book Ratios
Companies with low Price-to-Book Ratios have many times performed better. The reason behind this is investor trust. They consistently underrate low performing companies. They overrate the companies with a high price-to-book ratio. The high expectations sometimes work against the investors. A wise investor spends money on companies that are economically down. This investment has a good shot of outperforming the market.
3. Don’t Panic – Have a Plan
One major cause of underperformance is panic. Investors panic is an economic crisis and started to drain the stocks without thinking. So, it is advised not to make decisions without proper planning. Many investors got emotional and fell prey to greed. Plan well to tackle the situations. Make a strategy to buy stocks when they fall below a point. Also, sell shares when they exceed a certain point.
Day traders are another option to outperform the market. They usually buy; sell an index or stock during the day. They study stocks and observe news events and buy the stock before nightfall. They buy these stocks at low prices and sell them high before night. However, they do not do well. 5 out of 4-day traders are not making big profits
You can also outperform the market if you have superior information. But, it is impossible to have such details unless the person is inside the company. But, insider trading is a crime.