If we want to be one of the best traders in the world, all we have to do is beat the market.
You know the stats by now:
- 99% of mutual funds underperform the market.
- 96% of traders fail to be successful.
- The best investment strategy for regular people is to just buy an Index Fund.
If we beat the market, we're better than just about everyone.
Of course, the key point in this is that is must be repeatable. Beating the market once is luck. Beating the market over a decade makes us the best of the best.
So what's the benchmark?
Over a long term--we'll say ten years-- we need to produce an average that's better than the market.
In short, we need to do better than 10.25% per year (on average). That's the goal.
It goes without saying that:
- If we win Wimbledon, we're the best tennis player in the world.
- If we win the NBA Finals, we're the best basketball team in the world.
- If we win the World Cup, we're the best football (soccer) team in the world.
And if we can average better than 10.25% per year, we're the best traders in the world.
So how can we do that? How can we repeatably beat the market over the next decade?
Here are some options:
1) We could invest with Dunn Capital Management. I've talked about Dunn's performance several times on the podcast and in posts. It's amazing. Since 1984, Dunn's firm has averaged 13.82% per year. That wallops the market's average over that time. And in the past ten years, Dunn wins again. Dunn Capital has averaged 16% per year over the past decade. If you want to beat the market and are an accredited investor (household income of $200-$300k), then you can start beating the market right away.
2) You could use the Magic Formula investing method. I've been tracking this portfolio since 2006 and it works. All you have to do is use the free magicformulainvesting.com screen and buy equal amounts of all 30 stocks that show up in the screen. Then hold those stocks for exactly one year and one day. Then do it again. Doing such a thing would have produced an average return of 10.38% per year over the past ten years. Guess what? That's better than the market.
3) Use a robot from a robot-making veteran. Specifically, find a veteran has been making robots for thirty years and believes that the best systems are the simple systems. I talked about one such veteran's perfect system in a previous post. If you bought his book and just added one little tweak to his Reversion to the Mean system, you could have averaged 11.65% per year since 2008. That definitely beats the market. [Keep in mind that this particular system is down 26% in 2017, but overall it's done very well, especially in the chaotic market of 2008.]
Any of those options could possibly help you beat the market for many years to come. And those options are things you can immediately add to your life.
Are those the only options? No.
Are there potentially better options? Yes.
And we'll talk about those options in the upcoming posts.
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