Welcome to Marketfox. I am an frequent reader of investment blogs and I have wanted to start a blog of my own for some time. Now that I have, I feel slightly nervous. Where do I start? Will anyone read my blog? There’s so much information on investing already out there, what can I write that’s worth reading?
I’ll try to get over my chronic case of writer’s block by starting at the very beginning – is it possible to beat the stock market? This will be the topic of my next blog post. But first, I would like to explain why I’ve chosen this topic.
The question of whether or not it’s possible to beat the market has been around for a long time – at least since Alfred Cowles 3rd published his paper “Can Stock Market Forecasters Forecast” in 1933. Academic careers have been built, Nobel prizes won and global funds management businesses created out of various attempts to answer this question. So what can I add to this debate? Not much, apart from some common-sense which unfortunately seems to be missing from a lot of the material that I’ve read on this topic.
It is an existential question that every investor must answer. After all, if it’s not possible to beat the market; I have nothing worth writing about in my blog. If that were the case, Marketfox would consist of a single post with the following recommendations:
- Hold a diversified mix of stocks and bonds.
- The mix of stocks and bonds should vary between investors. It should be a function of their risk tolerance and their investment horizon.
- Your age is, in most cases, an acceptable proxy for the level of investment risk that you are able to bear.
- Investors with a higher risk tolerance/longer investment horizon should invest more in stocks.
- Investors with a lower risk tolerance/shorter investment horizon should invest more in bonds.
- Use index funds. These funds are low cost, market-capitalization weighted and well-diversified.
- Over the long-term, investors are rewarded for investing in stocks.
- Having bonds in a portfolio helps to diversify a portfolio and reduce volatility.
- It is impossible to consistently “time the market”.
- Periodically rebalance back to your target asset mix.
- Dollar-cost-average into your investments over time.
- Buy and hold, except when rebalancing, dollar-cost-averaging or changing the target asset mix.
That would do it. I could then go and do something more worthwhile, interesting or fun with my time – like learning how to play my new guitar. But suppose that it’s possible to beat the market. If so, the logical questions that follow are:
- Why is it possible to beat the market?
- How can we do it?
Assuming that good answers to these questions can be found, the answers could be used to create an investment philosophy and process. By sticking to a philosophy and process that’s logical, is based on economic principles, can be implemented practically and is repeatable – it might just be possible to outfox the market.
This is what I hope to write about on a regular basis. You can find the Marketfox editorial calendar on About.
Thank you for reading my blog. I hope you visit again soon. Please click on the “Follow” link if you would like to receive an email notification each time that I add a new post to Marketfox.
P.S. Some readers might read my comments and think that I’m against investment in index funds. I’m not. I use index funds in my personal investing when it comes to investing in areas where I don’t have the time, the knowledge to get my hands dirty, or where an actively managed fund is just too expensive. An example is global and emerging market stocks, where I invest using index ETFs.
I also believe that the majority of do-it-yourself investors – and sadly, even many professionals – would be better off using low cost index funds instead of trying to do it themselves or using expensive, actively-managed funds that promise much but deliver little.
In other words, there are times when index funds are appropriate. But this is not the same as believing that it’s impossible for any investor to consistently beat the market. Instead, it’s important to know why, how, under what circumstances and by taking what kind of risks it’s possible to beat the market before deciding whether or not to try.