Can You Beat The Market ?

Can you beat the market ? I'm going to do my best to convince you that the answer to this question is NO. This surely is a novel way to start a book about speculation ! Of course the name of speculative game is beating the market. And , Yes, I want you to read this about beating the market and tell your friends to do the same. But I also want you to read this with your eyes wide open to the dangers and pitfalls of speculation. There is no easy money waiting for you in the financial markets. So here, right up front, is the most important thing I have to say to you : DON'T SPECULATE UNLESS YOU ARE SURE HAVE AN EDGE. WITHOUT AN EDGE YOU CAN'T BEAT THE MARKET.

What do I mean by an edge ? An edge is a talent or skill or some specific knowledge that will give you an advantage over other investors and speculators. Sad to say, a high IQ, great educational credentials, or a substantial net worth are NOT edges in this game of speculation. Neither is the willingness to work hard and to keep trying after repeated failures. These things may make you success in your profesion or trade and a valued member of your community. But they won't guarantee you success in the world speculation.

You should know that the biggest part of any speculator's edge does NOT come from a superior scientific or statistical knowledge of market behavior. IF IT DID, you could build your edge the same way you acquire skills in any profession by study and practice. But have you noticed that no college or university offers a major in speculation? There is a good reason for this. A speculator's edge arises from two personal traits that can't be taught and that people either have or don't have. The first is flexibility of mind and spirit, the ability to adapt easily and quickly to changes in market conditions and habits. The second is the willingness to think for oneself and to risk hard-earned money by " fading " ( investing opposite to ) popular opinion. This means that you will ussually take market positions that most people ( your husband or wife especially !!) will see as unwise or even foolish. Doing this day in and day out requires emotional toughness that few people can muster. It also requires a certain arrogance a firm conviction that you know you are doing and that most other people in the market don't. Do you have the right stuff to be a successful speculator?

I think you will agree that this is an unsual explanation of the nature of the speculator's edge. In our technological society, it's natural for people believe that speculative profits arise from use of superior methods or from some arcane knowledge of market behavior. But this isn't true. The essence of successful speculation cannot be found in specialized knowledge of the market behavior or of trading technique. You can't learn to be a successful speculator by reading books, by taking courses, or by attending seminars.

However, the financial markets need skilled speculators. Capitalism couldn't survive without them.

Happy cuan.