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Thayer Partners Blog

Beating The Market: Winning The Loser's Game

[fa icon="calendar"] Aug 26, 2015 12:23:00 PM / by Chris Wilmerding

Chris Wilmerding

About 30 years ago, my father gave me a book for Christmas called Winning the Loser’s Game: Timeless Strategies for Successful Investing and said simply, “This is one of the best books on investing you’ll ever read.” He was right.

Portfolio_ManagementThe Difference between Professionals and Amateurs

In the book, author Charley Ellis talks about tennis as two games — the one played by professionals and a few extraordinary amateurs – then there’s the game played by the rest of us. The first kind involves hitting winning shots consistently while the second kind is a game of hope.

Both groups have the goal of winning. However, only one group has the training, talent, and resources to consistently pull off major wins and rank in tournaments.

The same behavior occurs in investing.

In his book, Charley draws the analogy between the two games of tennis and investing in the stock market — most people have no hope of beating the market since only the top professionals can do so consistently.

In fact, according to a money.usnews.com article, “the mid-year S&P Indices Versus Active Funds Scorecard (SPIVA) shows that, with few exceptions, index funds have dominated their actively managed counterparts. As one example, over the past year, the S&P Composite 1500 beat 89.84 percent of all actively managed domestic stock funds.”

That’s right, a low-maintenance, passive index fund beat the vast majority (89.84%) of managed funds. With this in mind, how can the average person hope to beat the market?

The answer is that most people simply will not be able to beat the market with any kind of consistency.

How to Beat the Market

So, how do you beat the market?

Ironically, it’s by not trying to. Unless you have a few hundred million giving you access to the best hedge funds, you have no business trying.

Instead of just going with expensive, actively-managed funds, make sure that your advisor considers the use of passive, index funds in a globally diversified portfolio. Then, Put most of your energy into developing — and executing — a plan that is focused on building a secure and comfortable retirement.

Passive index funds have recently produced better results than their more expensive, actively-managed counterparts. Part of this can be attributed to the very structure of passively managed funds, like exchange-traded funds and index funds. They attempt to mimic the securities that make up a particular market. Instead of making numerous and frequent trades, as with active management, passive funds work off a fund portfolio that the manager creates. This portfolio’s goal is to achieve the same returns as the index. As there is less work with managing passive funds, they tend to have lower fees. Diversify your investments so that you aren’t putting all of your proverbial eggs in one basket. This way, if some unforeseeable disaster does occur that obliterates the value of a supposedly secure stock that you’ve invested in, you don’t lose everything to that one mishap.

Remember, beating the market isn’t necessarily about getting rich quick, it’s about making steady gains with smart investments that grow your nest egg while reducing risk as much as possible.

While there are no guarantees, following the advice of an experienced financial advisor can improve your odds of making money instead of losing your shirt on the stock market. Playing it smart and safe with your stock portfolio can help you keep money in the bank during your retirement years. For more ideas to help you avoid running out of money in retirement, check out our free guide at the link below. And if you have any questions pertaining to your specific situation, give us a call.

Avoid Running Out Of Money At Retirement

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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