Beating the stock market has been the goal for investors for over an hundred years. There have been numerous books and articles written with the various pros and cons concerning the possibility of beating the market. Many websites tout their wares and provide great amounts of evidence showing that only they have the ultimate secret to your successful investing experience. Then there is the Wall Street guru’s who pour forth their own evidences to show that investing in the index funds is the only sure and safe way to invest your money. The question is, who is right?

In one study as reported by Mark Hulbert on March 9, 2008 in the New York Times, it was reported that investors spend over 100 billion dollars to try and beat the market. The study was in a academic working paper authored by Kenneth R French, a finance professor at Dartmouth. He looked at the costs involved in being active in the stock market. He analyzed all of the trades completed, the costs involved and the rate of return achieved. His determination was as stated above that 100 billion dollars was spent uselessly.

What are the implications of his market research? One is that the typical investor can increase his annual return by just shifting to an index fund and eliminate the expenses involved in trying to beat the market. He concludes that the best course for the average investor is to buy and hold an index fund for the long-term.

I really think that he is right in his assumptions. If you are a beginning investor who is trying to get the best possible return over a long-term investment, the safest course for you is to invest in a growing index fund. This will allow you to watch your money grow and not have to sweat over the details. Outsourcing is a big deal in today’s economy and by investing in an index fund you have done just that. You have outsourced your investment and allowed yourself the time to do other things that are more important to you.

On the other hand, some people just are not made for outsourcing. They want to have a hand in each investment decision and feel they have the knowledge and stomach to make the proper entry and exit decisions. They feel they can do better than the market and they may be right. Taking the time to research each potential stock or mutual fund and buy shares when the time is right is a possible method to use to beat the market.

Growth minded investors can continue to wait for the dips in the prices of high P/E companies while value minded investors can pore over companies trading near their 52 week lows. Establishing a proven trading system and being willing to watch over your stock investment as a mother might watch over her children just may provide the way for higher investment returns.

Thus both arguments are correct for different sorts of people. The active investor does need to watch his trades and reduce his trading costs to make it worth it to him. Using a discount broker or trading online will be the way to go for him. To win, he does need to take his emotions out of the scenario and always have an exit plan available for each entry point. The careful investor who has a risk aversion but realizes the need to do better than the returns available with CD’s or Bonds can do reasonably well for themselves with an index fund. They do not need to worry themselves about their investments. So decide what type of investor you are and go for it.

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Tags: buy shares, index fund, investor, market, market research, outsource, trading system