How can the Casual Investor Beat the Market

I’m here to tell you casual investors are perfectly capable of beating their respective market benchmarks (typically the S&P500) if they are willing to put the time and effort into researching their picks. The biggest mistake new/individual investors make is buying and selling on the basis of emotion or what they’ve read from the media. There will always be good stocks to buy in the market, so don’t feel like you need to rush to buy something right away. Be patient, buy when you think, fundamentally, the price is right. Discipline and patience should rule your stock portfolio, not the up and down roller coaster of the short-term happenings of the market.

Before buying any stocks, you’ll also need to know a couple of things about your own personal investing style. First and foremost, how risk-averse are you as a person? Are you willing to pay for capital appreciation at any price? If your stock drops 20% in a day will you lose sleep over it? Or are you a conservative investor, who would like to see his money grow and beat the market over the long term without the inevitable gut-wrenching volatility that many high growth stocks display? Even before you know how to invest, you should know what kind of investing suits your personal style. I myself am the latter, I enjoy the competitive challenge of consistently beating the S&P, but I’d prefer to do so with limited risk.

Now that you’ve determined what type of investor you are, its also good to know the inherent advantages you have as an individual investor. You have a lot of liquidity that large mutual funds simply don’t have. You can move in and out of stock positions easily, where as a large mutual fund would have to purchase thousands of shares to gain a sizeable position and then risks bringing the stock down when they want to sell out of that position. Know that you have a lot more flexibility and use it to your advantage. This is particularly true of small-cap stocks.

Now that you know what kind of investor you are, and the inherent advantages to being a small investor, you’re going to need a strategy. I can’t suggest a strategy for you personally, I’d have to write a book just to cover all your bases. What I will say is that your best bet here is to read about a wide variety of strategies and pick one that suits you. There are a huge variety of good investing books out there by Graham, Siegel, and yes, maybe even Jim Cramer, that have valuable investing advice and will help you make the jump from amateur to experienced investing.

Happy Stock Hunting, and remember, do your homework!