Bull and Bear

January 2003


Beating the Market, and Other Dumb Ideas

Back in the good old days, when the stock market was going up, December and January were the months of outrageous predictions. Twelve months hence the Dow would be at 20,000, or 40,000 or a bazillion. At last, every prognosticator in the business is exercising some caution. Now if they would just drop the words "beat the market" from their list of pat phrases.

Investing is not about outperforming one's neighbor. It is not about over-night millions in profits. It is not speculation. Investing is merely putting excess capital to work where there is a local shortage of the stuff. "Beating the market" is merely a stock-picker's way of attracting funds, by claiming to be better at it than most.

But as an individual investor, beating the market is irrelevant. In 2002, the Dow dropped by about 17%. Losing 16% makes one a market beater -- but is that why the money was invested? A New Year's resolution for individual investors might be in order here. "Resolved: I will accept moderate rates of return for moderate risks. I will not put money into investment vehicles I do not understand. I will not trade on margin. I shall preserve capital at all costs."

And a prediction. The DJIA closed 2002 out at 8341.60 -- it will be at a different level on December 31, 2003. Anyone who claims to be more accurate than that is likely after your money.