How do you know if you have what it takes to beat the market in an investing job?
Investing seems like a really competitive job because I think in order for you to make money someone else needs to lose money. For the investors in the group, how did you get the confidence to believe that you could be smarter and make better investments than all of the rest of the people investing all around the world? #finance #financial-services #investment-management #investing
4 answers
Chuck Jones
Chuck’s Answer
But in the aggregate for a PM to outperform his benchmark someone else will underperform.
I was fortunate to beat my benchmark for six consecutive years out of seven (I underperformed my first year) and then was let go with the rest of the team when the market crashed in 2008. It is very tough to do and as another person wrote most PMs underperform in the long-run. That is one reason why so much money is moving from active to passive Index funds.
Before I became a buy-side technology stock analyst I was at IBM for 16 years (mostly in sales) and then a sell-side tech analyst for three years. Being on the sell-side give me a lot of experience before I was actually responsible for managing money.
To outperform you have to work a lot of hours, read a lot (but figure out what is worthwhile and what isn't since there is so much more information than you can ever take it all in), talk to a lot of people, figure out what questions to ask and how to ask them (there is an art to that), be willing to make mistakes and shake them off (since you will buy stocks that go down), be good at math and recognize patterns. be willing to go against the grain (but also with the flow at other times), understand that what happens with a stock is out of your control and realize that you have to make decisions on imprecise and limited information. I also believe you need to be confident (which you pointed out which you get by experience) but not arrogant (you will make mistakes).
Then you also have to get lucky at times.
While I wasn't the most "intelligent" in my high school or college (but am pretty smart) I believe I have very good common sense and can rationally analyze a situation or company. Trying to not be biased is also very important to the job and be willing to not screen for confirmation bias in information. Being able to change your position is critical to being successful but also willing to stick to your guns when it is going against you is important.
If you think you are up for all of this then you have the underpinnings to be in the investment management business.
Ron’s Answer
Genti’s Answer
Most managers do NOT beat the market on a consistent basis, after their fees. The SPIVA reports http://us.spindices.com/spiva/#/reports keeps track of the mutual funds vs. the index (the unmanaged market) and over time 90% or more of managers cannot beat the market. Most managers that do so either get lucky or strike big once or twice and lag after that. Very rare for someone to continuously overperform.
In order to overperform, you have to think what the market is getting wrong and at what time they're getting it wrong, both very hard to do, so I would focus on something else instead of trying to beat the market.
Steve Lewis
Steve’s Answer
This is a great question! I have been investing since 1997. I have tried everything from stocks to forex. After learning from my mistakes, what I really like the best is real estate and selling put options. I think they provide the best of both worlds. But with any investment, it really helps to read as much and you can about it and start off small. Most of the time mistakes are made based on emotion and greed creeping in.
If you like stocks, I'd recommend "Trading for Living" by Dr. Alex Elder. He really describes how to trade without letting emotions get in the way.
If you want to know more about options, I highly recommend reading the articles and watching videos on TastyTrade.com. This site was started by the person (Tom Sosnoff) that sold the thinkorswim platform to TD Ameritrade.
Good luck!