Beating the markets consistently is a professional game. There are many instances of investors beating the market in the short term; however, there are very few success stories of beating the markets consistently in the long term. And those investors that are able to do so are often given celebrity status, both globally as well as in India. Interestingly, ace investors Warren Buffet or Rakesh Jhunjhunwala seem to be trending on the internet these days than film actors! ‘Consistency’ in beating the markets is the keyword here. How do you beat the markets consistently and which stocks should you hold in your portfolio to beat the markets consistently?
Which is the best strategy to adopt – growth investing, value investing, high dividend yield stocks investing, or penny stocks investing? There are different approaches to beating the markets in the long term. The normal perception amongst investors is that one can expect higher returns for every unit of higher risks adopted. This would suggest that those investors who want higher returns should ideally invest in high-risk stocks. It also literally indicates that those investors who consistently invest in high-risk stocks can expect to get high returns and beat the market indices. Here is where the stock market practicalities and empirical evidence question this assumption and actually completely contradicts the notion of high risk equating to higher returns in the equity markets.
It is found that it is the low volatility stocks that tend to beat the markets consistently in the long run. Riskiness in finance is defined by volatility. High volatile stocks are considered risky and low volatile stocks are less risky. When it comes to risk-adjusted returns, again the low volatility stocks have an edge as in the long run the low volatile stocks deliver better risk-adjusted returns than the highly volatile stocks. Low volatility stocks across geographies, whether in the markets of the US, Japan or Europe, have shown a tendency to outperform the market indices in the long run and that too on a consistent basis.
Managing Director and Chief Investment Officer (Equity), JM Financial Asset Management Ltd.
Current market rally has been on the back of earnings’ growth and PER expansion
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