Answered Essay: I really like the comment that you included in your posting regarding the impossibility of an investor cons

I really like the comment that you included in your posting regarding the impossibility of an investor consistently beating the market. The truth is that every investor would like to beat the market by earning higher than average returns on their investments. However, the reality is that given an efficient market, this isn’t going to happen continuously over a long period of time.

With that being said, does this mean that investors should be skeptical of investment firms that promise and/or appear to generate substantially higher than average returns on invested funds? Why or why not?

Expert Answer

Efficient Market Hypothesis– This theory says that it is not possible to beat the market. Overall stock market is very risky, uncertain and unstable, nobody can predict it. No research is 100% accurate in that case. One big news is enough to let the market down. This theory says that stock market is not efficient.

Investors earn higher returns than average– Yes it is true, sometimes Investors get handsome returns and beat the market hypothesis, they get unexpectedly higher returns than average. They invest into direct Equity and Equity related schemes and get good returns but on the other hand sometimes Investor loose their money when the stock market comes down, they even loose the principal, they invested. Investing in stock market or equities is not always a bed of roses, sometimes it proves wrong and negative for investors and traders.

People who are risk averse, invest into equity and get above average return. People who can take less risk, get an average return as their money is invested into equity and debt both.

Diversification- The best way to get higher return with less risk is the diversification of money into different asset class group. As it is said, “Do not put all your eggs in one basket”. One should not choose one stock or industry to invest rather he/she should choose multiple stocks of different sectors so that the risk can be diversified. Sometimes if market comes down, not all the stocks come down, some stocks still do well irrespective of the market, hence diversification always gives the benefit.


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