Trading Stock Market is your Worst Enemy. 9 Ways to Defeat it
Defeating the stock market is the Holy Grail for several investors and investment fees is one of major obstacles traders face. If for instance you invest in an S&P 500 index fund, your investment will perform identically to the S&P 500 and investment fees will be subtracted from those returns, preventing you from defeating the market.
As a matter of fact, an average investor is very unlikely to defeat the market. Most people allow their emotions (mostly greed, impatience and fear) hinder them from doing the right things. However, if you have sensible expectations and you don’t demand immediate result, there are ways you can defeat the market.
1) Set goals, monitor your progress
Diving head first into the stock market won’t do you any good. It is a fact that most investors don’t know where they’ve been, talk more of where they want to be. So it is ideal to start by figuring out where you want to be. Then construct a plan on how you’re going to get there.
2) Concentrate your assets
Diversification is a popular word in the stock market, as most investors are advised to spread their assets around so that their investment will be protected from a single catastrophic loss. But as warren buffet would say “diversification is for people that don’t know what they’re doing.” It is far more beneficial if you concentrate your assets. This way you’re limited to a list of things you can understand better, monitor and react to. Don’t try to protect your money against things you can’t control. Invest in globally unstoppable trends that have trillions of dollars behind them.
3) Limit risks by using trailing stops
Do what most successful investors do, try to focus majority of your efforts on avoiding losses. And the simplest way to do this is through “trailing” stops. A trailing stop establishes a certain price at which you will exit the position automatically.
4) Value Investing
The idea behind this strategy is to buy underpriced shares of good companies. Although such stock do not offer high growth in short term, in long term they’re expected to do great and potentially defeat the market.
5) Growth Investing
This is where investors invest in high-risk, high-return stocks. If you want to defeat the market you can invest in shares of smaller and new companies which may give higher returns than most established companies.
6) Active Investing
In the short term, the prices of shares keep fluctuating. Investors involved in active investing, aim to buy before price increase and sell before prices decrease. The secret to this strategy is to identify the right time to buy and sell.
7) Contrarian Investing
This is a method where you go against the market. When the market is in decline, try to buy certain stocks. The rationale behind this is that stocks of some good companies may get undervalued in the short term due to market fluctuations but in the long term those stocks are expected to gain in value and yield good returns.
8) Investing in Funds
Instead of investing in stocks directly, you may choose to invest in funds. Professionally managed funds that invest in groups of stocks or a mix of stocks and other instruments. This sort of funds offer a lot of flexibility to investors
9) Low-cost Funds
Whatever approach you choose to us, carry it out with low-cost funds, not individual stocks.