Beating the market today seems like a thing only a fool would say, right? And also like don’t try to be a (greedy) smartypants – simply take what the market is giving you and call it a day. After all, once you account for fees (and more fees) most active managers don’t do much better than the market.

And that’s me being nice. Most actually do worse than the market. But hey, I still hold active funds in my portfolio – did that surprise you? Well that’s for another day! Hint: not all parts of the market are as efficient as you might think. 

Today is all about how you can beat the market. And join the big boys’ league up top because, yes – it is still very much a boys’ club – something I’m doing my best to change. One female in asset management at a time.

Sorry, I digress. 

Active investors can beat the market by having either or all of these 3 things:

a) better info
b) better process
c) better behaviour  

Back in the day, you were able to compete on better info. By vising countries not many were travelling to you were able to get on-the-ground data that simply wasn’t available in “mainstream” media. Or if it was, it took ages to get there.

If you had an investment house and you had people digging up info you were more likely to spot something before others. Now, that’s all but vanished. The internet opened up the world of info. Suddenly everyone had tons of data at their fingertips. Didn’t matter their social status or geographical location.

Then there’s better process. And this is the one that helps separate the best fund managers from the rest. But for an individual investor it can be quite hard having a repeatable, robust process that doesn’t a) take up loads of your time and b) requires a lot of technical expertise. 

Back to the active vs. passive thing –  I believe there’s a spot for active investing (stock-picking vs buying the entire index) because markets are NOT always efficient – investors don’t always react rationally to news (both good and bad).

And in the short term, Mr Market has wild mood swings. So it’s in the 3rd bucket – “better behaviour” – that you, as an individual investor can totally beat the market. And the best part? You don’t need to be a brain box to do that. No fancy models or whatnot. 

News at your fingertips means you’re far more exposed to the ups & downs and if you aren’t careful, you can act on this short term stuff 

The later you get your news the bigger your advantage! 

Info is at our fingertips. Gone are the days where you had to wait till your newspaper landed at your doorstep before you could see what was going on in financial markets. Now you can literally follow everything as it’s unfolding.

Sure, the spread of info + the ease at which we can get it (not to mention the sheer volume of it) has made our lives infinitely better. It democratised access to knowledge. No matter who you were you could get your hands on the same info as everyone else. And that’s a brilliant thing. 

The downsides to that are that we become “reactive”. We get the urge to act on news events whether that’s something big like a market crash or the total opposite: a market rally (like the S&P’s been enjoying for a looooong time).

Which by definition is a much longer-term event than a crash. We read the Fed’s minutes, CPI data, unemployment data and so on. We get this info when it hits the marketplace. And it can be really, really hard not to act on it. Because it’s literally all around us. (We’re also forever forecasting future risks but you’ll miss the point – so this instead).

And if there’s one investor I’ve studied who I think embodies this perfectly it’s Sir John Templeton. He knew how to manage his emotions, was incredibly disciplined and ultimately understood how powerful our behaviours our to total return. Here’s 3 things to stop doing if you wanna max out those gains and minimise those losses!

Sir John Templeton joked how his good performance was thanks to him getting hold of the WSJ a few days later than everyone else since his office wasn’t located in Wall St. Where everyone else’s offices were.

He moved to the Bahamas in the 60s where he enjoyed a slower pace of life & one where he was able to do things differently because he wasn’t being influenced by the other gazillion finance-folk around him. 

Distancing yourself from the crowd can be your hidden tool 

He was removed from everyone. Being “away from it all” (which can mean different things to different people) means you get to see things differently. You’re not attending the same investor conferences (and free lunches – gosh I find them so incredibly awkward anyway) and more importantly, you’re not listening to the same stock picks everyone else is busy listening to.

You get to have an independent experience and learn to think for yourself. And focus on reading what matters and on making good long term decisions. The rest really is just noise. Noise that we happy subscribe to but noise nonetheless. Drowning out the good stuff. The sorts we should actually be focusing on. 

It’s psychologically really hard to remove yourself form the crowd but it can be hugely rewarding. This can be done in loads of different ways and moving out of the financial hub isn’t always the solution best for you!

It can be as simple as reading different media (newsletters from individuals rather than mainstream media, trying new hidden podcasts or even reading foreign media if you’re multilingual!) and looking at areas others aren’t. It also means trying new things and experimenting. And to understand the best & most guaranteed way to make money is not to care about losing it to begin with.

It could also mean you don’t glue yourself to the Bloomberg channel! That you read the news after it comes out and when the dust has settled. Sure, you’ll be less-informed at times but your investment performance might appreciate it!

Of course, this isn’t always possible. And bottom-up stock pickers (the guys who are actually paid to pick the best of the best) often have to be super-duper informed. Staying on top of company’s and watching them like a hawk.

So your career path might not always permit this kind of media-isolationism! But if it does, I say go for it. It’ll help you think for yourself and get exposure to different minds/perspectives. 

The 4-letter word that can derail our entire plan 

FOMO 

It ain’t a joking matter. And it’s not just for teens in Tik-Tok vids. FOMO can destroy what we’re trying to build. Going against the crowd can make you money. But for that to work you have to stick with the plan. No matter how long it looks like it’s not working for. All can change in a split second. 

But when everyone around you seems to making money at absurd valuations in the stock market that right there comes the hard part – how do you sit there and be patient when it feels like physical punishment!

When everyone around you is making money and you’re not.  

2 things that can help with better behaviours

OK, obvs we gotta avoid FOMO. That nasty beast. But building strong behaviour (like patience, delayed gratification, calmness, rationality ect) can actually get better with these 2 things: 

1. Diet 
2. Exercise 

You are what you eat. The healthier you eat (whole foods, lots of fruit ‘n veg) the clearer your brain will be. You’ll be able to think in a calmer, more measured way. Junk food literally changes your mood.

You get more jittery, impulsive and it’s just not good. Sure, some treats here and there are a must (c’mon we all need to live a little) but as long as it’s not a big part of your diet. It can really screw things up. 

Then there’s exercise. Honestly, it’s life’s form of free therapy/mood boost. And I’m gonna add walking there. Walking is underrated. Walking slows you down. It makes you stop and think. Some of my best work comes to me when I’m wandering outside. Try going for walks (minus phone) more often. Stop and stare. Let it slow you down.

So yeah, behaviour is critical to long term investing success and ultimately financial freedom.

You need to be patient, control your emotions and be ready to take advantage of opportunities that have been oversold or areas clothes have overlooked and have the stomach to do that.

But really all it is is slowing down and not forcing anything. Studying your losses just as much as your winners (if not more) and never attach emotions to a trade. 

How hard can it be, right? 

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.