Outperforming the Market

Stock trading is often compared to gambling. A seasoned investor will tell ya that stock trading can be considered a science. You can make consistent profits if you are aware of your investment goals and risk appetites. You can also benefit from reviewing your stocks regularly and using the right investing strategies. You will soon be able to outperform your market. This will allow you to realize higher returns. Let's see how we can outperform stock markets.

There are four ways to beat the stock market

There are four strategies that you can use to beat the stock market. These are the following:

1. Invest with stocks that have low price-to book ratios

Most seasoned investors are aware of a simple fact: companies that feature in the stock markets' bottom 10% have consistently outperformed those with the top 10%'s price-to book ratios. This is due to investors continually underestimating the capabilities of poor performing stocks while overestimating stocks they expect to earn high returns. Investors who are able to find the discipline to buy shares in companies that appear to be dying and diversify their portfolios in such companies have a greater chance of outperforming long-term markets.

2. Get your stocks from motivated

Another option is to buy shares from motivated sellers. Motivated sellers will often sell their stock for other reasons than the business' fundamentals. Let's suppose a stock is taken from a widely-held index. In this instance, many institutional investors will need to sell their shares. The stock's supply can be significantly greater than its demand. You would be wise to invest in such shares for less than their long term value if you are an intelligent investor.

3. Don't overpay for growth

A third strategy to beat the market is to avoid overpaying growth. One of the most common and easiest mistakes investors make is to overpay for growth. While growth can bring with it higher profits in future, this trap is easy to fall for if you have the herd mentality. These stocks are often over-bought or over-hyped. While everyone seems to be making profits, the opportunity is usually very short-lived. If you're considering investing in a hyped stock, make sure to consider the current stock price and earnings. Then, leverage a discounted cash flow analysis to calculate the market's growth pricing over the next 5-10 years.

4. Develop a strategy and stick with it

To outperform the stock market, you must have a systematic approach and stick to it. To avoid panicking or greed, you must master the art of controlling your emotions. You must remember that the stock market is subject to fluctuations and you need to be able to react to them. If you allow your emotions to take over, you could end up investing for longer than you need or exiting the stock sooner than you should. It is important to plan ahead and make sure you sell and buy shares at the right times.