Somewhere in this world, there will always be people looking for the holy grail of investing: beating the market. In case you have no idea what it means, it simply refers to a superior investment methodology that when applied, will make one lots of money and be ahead of everyone else.
As cliché as it may sound, such a thing does not appear in reality; and investors often tend to spend too much time chasing after this fallacy to the point where a great deal of opportunities are wasted during the period.
That said, if you examine the track records of the investing legends who have consistently outperformed the stock market as a whole, you would see some common traits that anyone can adopt easily to their own investment portfolios.
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Without further ado, let’s look at 3 ‘secrets’ to beating the market:
Secret #1: Invest in what you know
When it comes to picking out some of their best investments, investment gurus like Warren Buffett and Peter Lynch have always stuck to what they know or can easily understand. One famous example is where Warren Buffett avoided the dot-com crash by refusing to dip into technology stocks during the era and focused on companies that spun off profits year after year instead.
Secret #2: Stick to your guns
While many people know realistically that investing takes time to generate returns (just like how we need to wait for seeds to blossom into huge trees), they often do the exact opposite. They usually treat the stock market as a casino and trade in and out, hoping to make a killing.
To add on to that, many investors commit the mistake of selling the winners and holding on to the losers. Peter Lynch once commented that his overall success could be attributed to a small number of stocks in his portfolio that returned big. He coined them “multi-baggers”, meaning that the stocks appreciated multiple folds in value.
Secret #3: Look for an impeccable track record
In my past 8 years of investing, I have dabbled in many different categories of stocks, be it growth stocks, turnaround stocks or income stocks etc. One thing I found out is that strong companies who manage to deliver on results constantly are inclined to continue doing so, as opposed to “turnaround” stocks which most of the time don’t turn around at all.