"Beating the market" is a difficult phrase to analyze. It can be used to refer to two different situations, both of which involve financial outperformance.
Key Takeaways
- The phrase "beating the market" is a reference to an investor or corporation seeing better results than an industry standard.
- With an investment portfolio, a market participant may have managed a return over a specific period of time, suchas a year, that surpasses the returns of a market benchmark such as the S&P 500.
- Similarly, an actively-managed mutual fund may have posted bigger returns than the S&P 500 or another benchmark, or biggerreturns than that of a similar fund.
- A company that is said to "beat the market" has released quarterly or annual earnings that surpassed the expectations of aconsensus of market analysts.
Investor's Portfolio
An investor, portfolio manager, fund, or other investment specialist is said to "beat the market" by producing a better return than the market average. The market average can be calculated in many ways, but usually a benchmark – such as the S&P 500 or the Dow Jones Industrial Average index – is a good representation of the market average. If your returns exceed the percentage return of the chosen benchmark, you have beaten the market.
Company's Earnings
A company is said to "beat the market" if the company's earnings, sales, or some other valuation metric is superior to that of other companies in its industry. How do you know when this happens? Well, if a company beats the market by a large amount, the financial news sources are usually pretty good at telling you. However, if you want to find out for yourself, you need to break out your calculator and request some information from the companies you want to measure. Many financial magazines do this sort of thing regularly for you — they'll have a section with a title like "Industry Leaders." We don't suggest you depend on magazines for your investment picks, but these publications may be a good place to start when looking for companies to research.
Advisor Insight
Nickolas Strain, CFP®, AIF®
Halbert Hargrove Global Advisors, LLC, Long Beach, CA
This phrase isn’t the most accurate statement in the world of investing because there are so many different markets. Most people will just compare performance to the S&P 500, but if you truly want to understand how well you are doing, it is better to compare the securities (stocks, mutual funds, ETFs) to how they are performing against a benchmark, the index that best represents the same asset class. For example, if you have an emerging market mutual fund in your IRA, you should compare that fund with an emerging market index. You would not compare an emerging market mutual fund with the S&P 500: They share none of the same stocks, the listed companies frequently contend with different risks and opportunities – and their nations’ economies and political environments can vary widely as well.
FAQs
The phrase "beating the market" means earning an investment return that exceeds the performance of the Standard & Poor's 500 index. Commonly called the S&P 500, it's one of the most popular benchmarks of the overall U.S. stock market performance.
What do people mean by beating the market? ›
To "beat the market" means achieving a higher return on your investments than the overall performance of a designated benchmark.
What does it mean consistently to beat the market? ›
"Beating the market" means getting higher investment returns than the S&P500 stock index. The S&P500 index is an index of 500 large-cap stocks in the US and is the most commonly used benchmark of overall stock market performance. Historically, it has had average returns of 8–10% per year, which is very high.
How do you tell if you beat the market? ›
The key is finding investments with a higher expected return than the average. If you're right about your projections, then you would be making more money on your investments than the average return for that market, so you are 'beating the market'.
What of people beat the market? ›
On average, only 46% of funds outperformed the total market over monthly horizons; 39% beat the market over 12-month periods; 34% over decadelong horizons; and a mere 24% for their full history. Fees are part of the problem, of course.
How can someone beat the market? ›
Risk Is Key
One way to try to beat the market is to take on more risk, but while greater risk can bring greater returns it can also bring greater losses. You might also be able to outperform the market if you have superior information.
Why can't I beat the market? ›
Why Is It Hard To Beat The Market? Beating the market can be difficult due to the volatility of individual stocks. In order to beat the market, you need to choose stocks that will outperform the overall market, and it can be difficult to figure out which will do best, and won't result in losses.
What percentage of money managers beat the market? ›
As a result, the percentage of actively-managed mutual funds that outperform the S&P 500 in any given year is only around 40%. And very few can consistently beat the market by enough every year to come out ahead in the long run.
What is the theory that you can't beat the market? ›
The efficient market hypothesis (EMH), alternatively known as the efficient market theory, is a hypothesis that states that share prices reflect all available information and consistent alpha generation is impossible.
How long does beat market last? ›
Bear markets tend to be short-lived.
The average length of a bear market is 289 days, or about 9.6 months. That's significantly shorter than the average length of a bull market, which is 965 days or 2.6 years.
The Difficulty Of Investing In The Stock Market
There are 3 barriers that prevent an individual from investing in the stock market: fear, inequitable access, and insufficient funds.
Is market beat worth it? ›
Copying MarketBeat.com's trades and holding each position for 1 Year would result in 48.82% of your transactions generating a profit, with an average return of -2.7% per rating.
Who benefits from market crash? ›
Young people (who are less likely to own stuff) usually benefit from these things. Say you're 21 years old and you're renting. A recession means that the house you're looking at will become cheaper. Or the stocks you're looking at buying will be cheaper.
Why do 90% of people lose money in the stock market? ›
Staggering data reveals 90% of retail investors underperform the broader market. Lack of patience and undisciplined trading behaviors cause most losses. Insufficient market knowledge and overconfidence lead to costly mistakes.
Do most financial advisors beat the market? ›
Most advisors do not beat market averages. There are popular index funds that track indices, such as the S&P 500, and a little over 80% of the time advisors and even actual mutual fund managers do not beat these taking 15 years into consideration.
What does it mean to go against the market? ›
Betting against the market in theory
A trader assumes that the shares of a given company are already too expensive, overvalued and that the company's performance in the future will be poorer than it is now, which in the trader's opinion should lead to a decrease in share prices.
What does the idiom hit the market mean? ›
Assuming that you mean something like "This product hit the market last year", it means that it's now available for purchase. It is also common to say "it hit the shelves".
What does it mean to bet against the market? ›
To summarize, short selling is the act of betting against a stock by selling borrowed shares and then repurchasing them at a lower cost and returning them later. It's a relatively sophisticated (and risky) trading maneuver that requires a margin account and a keen understanding of the stock market.
What does beating the market mean on Reddit? ›
Beating the market means picking stocks that outperform the indexes by a good enough amount over stocks that underperform the index to net an above market return. And with a smaller account, it is even harder because you will only be able to afford a few positions and any of those can sink your overall return.
