If you are investing in stocks and bonds and businesses, you will find that making market beating returns is very tough, even when things are going your way. Different strategies and investment ideas can limit or improve your odds a bit, but generally, there is so much that you can’t control, that it becomes hard to come up with a fully successful game plan that works 100% of the time.
Whenever you are value investing, it can be even harder to beat the market and get a good return because you are picking stocks that are much lower than their book value. While you do get a margin of error and some safety on your investments, the less aggressive trading doesn’t bode well for fighting the market. Unless you follow some of these tips.
One of the first lessons to learn (or unlearn as the case might be) is that you don’t need to go high risk, high reward in order to get a victory at the market. While many investors believe that you need to play high risk and take chances in order to get a high reward, that isn’t always the case. Playing it safe and smart can help you beat the market and walk away with a pretty good payday, and if you are willing to play the long game, the low-risk stocks can outperform the high-risk ones.
Nothing is guaranteed on the market except for the taxes you are going to pay on it, but many legendary market investors like Pim Van Vliet believe that a low market share is able to recover from the highs and lows of the market much faster than a high market share, and the high returns from the low-risk rates manage to give value investors more options to play with in the long term.
While the news and the media and all the accounts of big wins in the market focus on the high-risk and flashy plays, The slower and patient moves never seem to make the news, but they do just as well, if not better. As long as value investors are patient and use momentum when they see it, they can make some real headway.
One of the biggest mistakes that many new investors make is that they focus on speed and reacting to the market. They chase the highs, bemoan the lows, and are always looking to put their money on the next big thing, often racing to keep up with the constantly changing market. However, if you play the long-term game and try to seek out all the things that the crowd isn’t following, you can make some success.
Even Warren Buffet, one of the greatest investors in the world, talked about this when asked about his strategy. He never chased the market and while his portfolio did lag behind a bit, it always seemed to find some success, and now he’s legendary. Warren Buffet has said that being average isn’t being the middle of the road, but rather doing what everyone else is doing and judging yourself by the world’s standards.
His trick to success for any investor is to measure yourself by your own inner scorecard- rising above the average by judging yourself by your own standards. Plus, take a moderate amount of risk. In the market, even if you play it as safe as you can, you will still have some risk, and at the end of the day, that is okay.
And if some of the biggest investors in the business are advocating slow play and taking your time whenever you make your investment choices, who are you to tell them they are wrong? Take a page from their playbooks, because what they did very obviously worked!
Finally, make sure to never dive into a stock or an investment opportunity blindly. Do research, look at the past history of a stock, talk to experts, and use online tools to calculate the DCF value of a stock before you invest. There is such a thing as too much research and taking too much time to the point where you never make a decision, but you can do some investigation before you make the call.
Making market beating returns as a value investor might be harder than doing it as an investor who goes all out and takes massive risks. But in the long game, you will have more money, less severe losses, and more options. As long as you stay true to your internal scorecard, you will eventually beat the market, and if you do it once, you can certainly do it again!
