Here’s How You Really Can Beat The Investment Professionals

You say you can’t beat the pros at investing? I say you can!

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

People have often told me there’s no point investing privately because it’s impossible to beat the professionals. But with only a few exceptions, that isn’t true — if you invest with a decades-long horizon and avoid simple mistakes, you’ll enjoy distinct advantages over most pros.

Short-termism is the pros’ biggest failure. Every year we see tables of the best-performing funds from the previous 12 months and previous three years. Is it any surprise that people almost always plump for those that have done the best? We see the “past performance is no guide to future performance” disclaimer, but how else do we judge?

The thing is, that disclaimer really is true — even if every investment manager picked shares randomly, one of them would be the best performer over 12 months, and one would be the best over three years! Competent investors (Warren Buffett and Neil Woodford spring to mind) eschew these annual rankings and leave it to investors to look to their longer-term performance — and superior performance only really counts when it comes to decades.

Should you invest £1,000 in Smith & Nephew Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Smith & Nephew Plc made the list?

See the 6 stocks

Trading costs money!

To get ahead in the annual race, too many managers trade their portfolios too often, trying to get into the next hot stock — if they miss this year’s big winner, they’ll gain fewer customers for next year. That incurs extra costs and would you be surprised to learn that around three-quarters of all managed funds have failed to even beat the FTSE average long term?

We have to look beyond current funds to see this shocking statistic, because these City institutions have an unsavoury habit of closing down the worst performers, transferring their assets to new funds, and starting again with a clean slate. That leads to a distortion called survivorship bias, which makes still-operating funds look better than they deserve as so many have gone the way of the dodo and aren’t included in the latest statistics.

One outcome of the race to be “this year’s best” is the distasteful practice known as window dressing. If you ran a fund that was holding a few 12-month losers, you might not look so good at the end of the year. So what many do, just before the end of their reporting period, is sell-off recent losers and buy into shares that have been flying so it looks like they’re holding winners.

That has two nasty effects. It increases trading costs purely for cosmetic purposes and with no real benefit. And selling shares that have fallen and buying ones that have risen is a pretty dumb strategy if that’s all you go on. It’s a way to lose out on undervalued shares with a recovery due in the near future, and a surefire way of finding overpriced junk that’s up there just because it’s part of the latest fad.

It’s easy to avoid

As private investors, we can avoid these mistakes. We should buy quality companies that we want to hold for the long term, and avoid whatever bandwagon fad-followers are jumping on. And it follows that we would be trading rarely and thus minimising costs. Plus we’ll have no need to make our portfolios look good over just the past 12 months or the past three years.

If you follow these principles, I think you’d be unlucky to not beat most of the professionals.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Just released: our 3 top small-cap stocks to consider buying in April [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

Here’s why Tesla stock just rocketed 22.7%! Is it time to buy?

This writer wonders whether the news that sent Tesla stock soaring yesterday is a true gamechanger for the electric vehicle…

Read more »

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »