One Way to Beat the Market

I have previously written that it is questionable whether professional asset managers can consistently beat their markets.

As such, I normally recommend passive investing for most individuals.

But I did recently read of one way to beat the market. 

According to The Wall Street Journal, one simply needs to understate the market performance.

And it appears that some financial advisors are doing just that.

A few takeaways from this article.

Maintain a Healthy Scepticism

Never take at face value representations made by anyone that is trying to sell you a good or service.

Evaluate the professional qualifications, experience, and track records of any professional you consider using. A financial advisor is not a financial advisor is not a financial advisor.

Know the Advisor’s Reporting Requirements

Know what the financial advisor’s reporting requirements are and what ethical standards they adhere to.

A good rule of thumb is to ensure that your advisor reports data in accordance with Global Investment Performance Standards (GIPS).

Of course, some unscrupulous advisors may breach their own reporting requirements, so be careful regardless of their standards.

The Onus is on You to Analyze

Always properly analyze any data you receive from advisors.

Never forget two latin phrases.

Caveat emptor. Let the buyer beware.

Ignorantia juris non excusat. Ignorance of the law does not excuse.

The onus is on you to know what is going on.

This is especially relevant when reviewing prospectuses for new investments or mutual funds.

Compare Like to Like

When assessing investments, always be sure you make apples to apples comparisons.

Capital gains and income need to be factored into the equation.

And do not forget about costs. Transaction, administration, management, and taxes.

Beating the Market is Hard to Impossible

This article is further evidence of how hard it is to beat the market benchmark.

If it was easy, advisors would not need to fudge the numbers.

I suggest you stick with a passive approach.

 

 

Leave a Reply



© 2009-2014 Personal Wealth Management All Rights Reserved