Investing article: Should you Beat the Market?

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It sounds great -- you can invest a certain way and beat the market. Many investment experts are selling guaranteed systems that allow you to beat the market. However, is this something you should really aim for in your investing?

The market isn't really the overall stock market. The market is usually referring to a certain index. The vast majority consider "the market" to be the S&P 500 Index. So when you hear market, you should really hear "this index." Remember, not all indexes will give the same returns. And there are weaknesses to all indexes. For example, the S&P 500 is heavily weighted with large cap stocks.

If you are comparing the results of a small cap group of stocks, the S&P would be like comparing apples and oranges. Large cap stocks and small cap stocks do not move to the same influences.

If your goal is long-term growth, the investments that will benefit your portfolio may not be those that beat the market every quarter. Companies that really work on building shareholder value for the long run make decisions based on this goal. These decisions often effect short-term earnings. However, in the end they add value to your portfolio.

Companies do take losses in some years in order to position themselves for a better future. Don't think that only those that beat the market will make you money.

If you are the type of investor that aims to beat the market, you probably should be investing in companies that are looking to meet short-term goals. The risks are usually higher with these companies as they give up stability in order to pull in the instant gratification. You probably will find that many of your investments are quite short term.

So perhaps you need to ask yourself whether you are an investor or a trader. Investors buy companies. Traders focus on just the stock. Most traders hold their stocks for the short term. Investors usually buy with the intent of holding the stock for a long time.

You are probably a trader if you:

purchase a stock because you suspect an upward price movement in the future.
are interested in making a quick profit. Buy low, sell high and do it again.
you don't care about the company. Your interest is in the stock and what it is doing right now.
You are most likely an investor if you:

have performed a thorough analysis of the company and see long-term growth potential.
understand the company and its market position.
know why the price has dropped and recognize it as rather a short-term situation or a long-term situation.
The investor tends to look into the stock further than the trader. They consider more than just the price. Instead, they look at the entire picture. For example, if the price drops, the investor will not panic. He will reassess the company and the market, asking if something has changed. What was the reason? Will the stock recover?

It is okay to be a trader. And it is perfectly fine to be an investor. Where the trouble begins is when people try to be both. Find an investment strategy that fits your investment goals and stick with it. Jumping around will result in unwise decisions.

About the author of Should you Beat the Market?

RateEmpire.com, http://www.RateEmpire.com, an internet consumer banking marketplace is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com and mortgage rate shopping portal http://www.1MortgageQuotes.com