Investing Secrets: You Can’t Beat the Market (but who cares?)

Posted on 29. Oct, 2008 by Elizabeth Potts Weinstein in Finance

I stopped watching CNBC years ago.

Because the media and most “experts” portray the stock market as something to be won or lost.  

Winning the race
According to them, you can beat the market.  You can beat the other investors.  All you need is to time it right.  If you can predict the economy, interest rates, presidential elections, foreign policy, energy prices, CEO firings, product launches, public thinking … if only you can see the future, then you will be able to buy at the right time, and sell at the right time.  And, only if you watch their show.  Read their book.  Buy their system.  Go to their big seminar.  

But they don’t tell you two Truths of Investing.  

Truth #1 – No fund manager has consistently beaten the market by timing when to buy or sell stocks, over the long term (20+ years).  Anyone can be right (or lucky) for a year or two, and some of the great stock timers have been right for a few years.  But no one has ever beat the market by trying to “time it” over the long term, especially if you include the costs and fees of all the transactions.  

Truth #2 – You don’t need to beat the market.  Investing is not a race to see who can die with the most cash.  Investing is not about getting the highest return this year.  Investing is a method of diversifying the risks of living too long and of high inflation, and a method of creating diverse sources of passive cash flow.  Whether you have more money than the next guy is irrelevant to whether you are able to retire on time … you only need as much money as you need.  

So stop watching those shows, stop reading those books, stop going to those seminars … if they make you want to place trades in your portfolio.  Just figure out the right asset allocation for you, rebalance annually, and relax. 

By the way … this works both when things are doing well, and when the stock market gets crazy.  Don’t sell, don’t panic, don’t watch the daily up-and-down.  Just rebalance, and relax.  

The Wealth Spa Minute

Are you stressed out by TV, radio, and books that tell you how horrid everything is in the economy and stock market?  Stop watching, stop listening, and stop reading.  Just stick to your plan and relax.

Photo courtesy of formerly-JF presently S-Team on Flickr.

 

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12 Responses to “Investing Secrets: You Can’t Beat the Market (but who cares?)”

  1. Lisa Almeida

    30. Oct, 2008

    Right on, Elizabeth! I love your perspective about the frenzy folks whip themselves into over trying to ‘beat the market.’ Imagine if fishermen tried to ‘beat the weather’ to get a good catch? Instead they work with it to accomplish their objectives.

    Just like a barometer measures changes in the weather, it seems to me that the market is a lot like a barometer that reacts and responds to people’s perception about what is happening in the market – in this way we have a great deal of power.

    One reports on an inevitable future event and the other responds to beliefs about future events – not inevitable at all but within our full ability to direct the outcome of, depending upon a group consensus.

    I too, stopped watching the news years ago and I fell much saner for it.

    Reply to this comment

  2. Elizabeth Potts Weinstein

    02. Nov, 2008

    It’s so funny when people ask me, “so what do you think about what happened in the stock market yesterday?” (since I’m a CFP)

    And my answer is — I don’t know, since I’m investing for the long term I don’t watch the daily ups-and-downs of the stock market. People are very surprised.

    Elizabeth

    Elizabeth Potts Weinsteins last blog post..Investing Secrets: You Can’t Beat the Market (but who cares?)

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  3. Bihter

    03. Nov, 2008

    Hi Elizabeth,

    Just wanted to say that I’ve started reading your blog. I’m wondering if you have heard about the book, “What Men Don’t Tell Women About Business”. I heard the guy (Chris Flett) on the Today Show and thought you probably have already heard of him. I’m wondering what your thoughts were. He seems to be really taking on the ‘Old Boys Club”. I just emailed him, but haven’t heard back.

    Anyway, keep up the great writing.

    Best,

    Bihter.

    Reply to this comment

  4. Bihter

    10. Nov, 2008

    Hi Elizabeth,

    I’ve been doing some additional research on the author, Chris Flett, that I talked about on my last comment. His company is “GhostCEO” (www.GhostCEO.com) and his book is a bestseller. I found it on Amazon here. Anyway, he was in the NY Times last Sunday under the “Career Couch” and he makes reference to women’s blogs like yours so I thought you might like to connect. I’d like to see you interview him and see what he’s all about. I saw on another blog he was a guest blogger. His email is: chris@ghostceo.com

    Best wishes,

    Bihter.

    Reply to this comment

  5. Elizabeth Potts Weinstein

    10. Nov, 2008

    Bihter –

    Thanks for hooking me up w/ that information! I’ll have my assistant producer do some research on him!

    ~ Elizabeth

    Reply to this comment

  6. investing stock

    05. Mar, 2009

    I really agree when you say “Investing is a method of diversifying the risks of living too long and of high inflation, and a method of creating diverse sources of passive cash flow”
    That’s also what I think about investing

    investing stocks last blog post..Buy Shares

    Reply to this comment

  7. Josh

    14. May, 2009

    I strongly agree with this Elizabeth. With everyone trying to beat the recession, the financial channels must be getting some awesome viewing figures. Problem is, the person on your screen wasn’t hired for their investment prowess (otherwise they’d be out earning money offf of the market themselves!) but for their skill in presenting.

    Think about that the next time you’re getting advice from the TV.

    Joshs last blog post..Facebook Konami Code Hack

    Reply to this comment

  8. Elizabeth Potts Weinstein

    15. May, 2009

    Yes Josh!

    People say to me, what have you changed about your investment strategy in the recession? And my answer is … wait for it … nothing. I just rebalance and keep on track. Because my investment strategy is long term! :)

    ~ Elizabeth

    Reply to this comment

  9. Market Timing

    29. May, 2009

    Hey this is a good article thank you for the read. I stumbled across this good market timing site myself that I have been using the past year. I have made quite a lot of money as there have not been any bad trades. If your interested you should check it out.

    Reply to this comment

  10. Toronto Spa

    19. Jun, 2009

    Great article Elizabeth,

    Being a recession victim, reading this article have give me more confidence and also luck matters for everyone with their initiative.

    Reply to this comment

  11. Keith - Forex Made Easy

    22. Jun, 2009

    I completely agree, I just recently read a quote by either Warren Buffet or Milton Friedman that said something along the lines of “You can be right 60% of the time with technical analysis, but you will be right 100% of the time with fundamental analysis.” You really need to do research before you invest. If you just blindly buy into the next “hot” market, you will often find yourself buying at the top. Do your homework and invest intelligently and you will “beat the market.” Remember what is a few weeks of research compared to an investment you may be making for several years.

    Reply to this comment

    • admin

      22. Jun, 2009

      Most of the time when “everyone” says it’s time to buy, it’s *actually* the top of the market and time to sell. :)

      My big risk/big return investment is my business. So when I invest for the long term, I invest in buy-and-hold-and-rebalance well balanced & diversified index funds. :)

      ~ Elizabeth

      Reply to this comment

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