What Is This "Market" That Stock Pickers Keep Trying to Beat?
We are often told that most people can't beat the market. And the corollary to that is that we should all buy index funds. An index fund is safer, because with an index fund you are diversified and you've minimized your risks. But there's a downside to index funds as well. The more stocks you own (and an index fund represents an investment in many, many stocks), the worse your overall returns will be. That's because an index fund is, by definition, a mediocrity. With an index fund you own the good, the pretty good, the average, the below average, and the awful.
Can you beat an index fund? A great way to find out is to play Motley Fool CAPS. In this stock-picking game, you pick the stocks that you think will "beat the market." And the software tracks your stock picks versus the S&P 500 index. I've been playing CAPS for many years, and it's given me confidence that my stock picks will indeed beat the market over time. Here's why individuals who pick stocks can and do outperform the market.
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Source Fool.com
