Don’t try to beat the Markets!!!

I would like to start this topic with the famous Quote .

"Talking about beating markets is irrelevant and extremely boring."
- Rex Sinquefield , Co-Author Stocks ,Bonds,and Bills ,Chief Investment Officer,DFA.


Every Investor scratches their head before choosing an equity fund and always there's a general imbroglio, seeing the various varieties of funds prevailing in the Market. All the time and effort that people devote to picking the right fund, the hot sector , the hot hand, the great manager, the best performing fund have in most cases led to no advantage. Unless your fortunate enough to pick one of the few funds that consistently beat the average, that makes your research futile.

Though most of the people won’t agree with this, asking to themselves that ,how a Fund manager who got graduated from Harvard won’t be able to choose stocks which can outperform the market at least? Keeping this in mind most investors simply buy a fund that has been going up fast, on the assumption that it will keep on going. And why not? Psychologists have shown that humans have an inborn tendency to believe that the long run can be predicted from even a short series of outcomes. What’s more, from our own experience that some bowlers are far better than others bowlers in cricket, that some baseball players are much more likely to hit home runs, that our favorite restaurant serves consistently superior food, and that smart kids get consistently good grades. Skill and brains and hard work are recognized, rewarded—and consistently repeated—all around us. So, if a fund beats the market, our intuition tells us to expect it to keep right on outperforming.


Unfortunately, in the financial markets, luck is more important than luck is more important than skill. If a manager happens to be in the right corner of the market at just the right time, he will look brilliant—but all too often, what was hot suddenly goes cold and the manager’s IQ seems to shrivel by 70 basis point A famous study in the financial world is Efficient market hypothesis(EMH) which sates that , It is impossible to consistently outperform the market by using any information that the market already knows, except through luck. Let’s remember the analogy of warren buffet "Tossing the coin"


So what we just want to make you sure is, If we have any idea about beating the market by choosing the best fund by the information we get, that is almost going to be futile. But this doesn’t mean that we are going to lose our money, a fund can offer excellent value even if it doesn’t beat the market—by providing an economical way to diversify our holdings and by freeing up our time for all the other things you would rather be doing than picking our own stocks.

Financial scholars have been studying mutual-fund performance for at least a half century, and they are virtually unanimous on several points:

1. The average fund does not pick stocks well enough to overcome its costs of researching and trading them;

2. The higher a fund’s expenses, the lower its returns;

3. The more frequently a fund trades its stocks, the less it tends to earn;

4. Highly volatile funds, which bounce up and down more than average, are likely to stay volatile

5. Funds with high past returns are unlikely to remain winners for long.

So the bottom line here is:

Instead of concerning ourself with the daily ups and downs of the market, one ask himself a couple of very important questions: why should we try to beat the market? After all, can it even be done? Wall Street is very anxious for you to take the beat the market approach, also known as active management. Wall Street wants you to trade and keep trading as often as possible, because that’s how it makes money.