Most people have met online stock market gurus or in-person brokers who claim to have the secret to all investments. If anyone makes such a claim, stay away from them, and don’t give them a dime. The stock market is volatile and challenging to predict; brokers are educated, but that doesn’t mean they run the table.
Stockbrokers beat the market less than 15% of the time. Most of them can get positive results, but that doesn’t mean they’re ahead of the game. The stock market is far too unpredictable and influenced by the world’s economy for anyone (professional or not) to beat the market.
Throughout this article, you’ll also learn the following info about how stockbrokers beat the market:
- Several reasons that a few brokers have found luck with the market
- Why most investment brokers face challenges trying to beat it
- How individuals can get positive results
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
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How Can Stock Brokers Beat the Market?
Before we dive into the details, it’s essential to know that most brokers don’t beat the market. The Simple Dollar claims that less than 15% of mutual fund managers overcame the predictions. Most honest brokers would admit that their off-the-chart results were based on luck. That’s not to say that they’re shooting blindly; the stock market is incredibly difficult to beat!
Here are five ways that stockbrokers occasionally beat the market:
- They buy the majority of shares from a small company. Major corporations, such as Apple or Tesla, have far too many shares for someone to buy all of them. However, new companies only have a few shares, so a professional can buy most of them. When they do this, it increases their influence on the shares.
- They’re educated and can recognize patterns. The stock market is one of the most confusing financial endeavors in the world. Millions of people (possibly billions) don’t understand how it works. However, a professional who works day and night to learn the patterns will act quickly when changes occur.
- Some brokers have enough clients to make a significant impact. Much like the first example, when a well-known broker has many clients investing in a specific company, they’ll be able to change it a bit. More purchases in large quantities lead to an increase in the price per share, which boosts the economy.
- Post-recession years increase their odds (and yours). The stock market’s basic rule is to buy when everything’s low and sell when they spike to gain a profit. When a recession hits, such as the one in the early 2000s or the Great Depression, the following years see the stock market gradually climbing.
- Luck plays a significant role in the stock market’s outcome. As you’ve read numerous times on this page, the stock market is hard to read and predict. Many people who beat the market do so out of pure luck. They bought at the right time, and everything worked in their favor.
It’s safe to say that nobody can continuously beat the market every year. Instead, they have to work their hardest to stay on top of it. If they’re able to exceed expectations, then everyone’s going to be happy.
If 15% of brokers do it annually on average, why don’t they keep doing it? Learn a handful of reasons in the next section.
Why Can’t Stock Brokers Beat the Market Every Time?
Now that you know how a stockbroker might work around the market and beat it, you’re probably wondering why they can’t repeat their results. No matter how much anyone studies the stock market, it’s impossible to find a perfect pattern. There are a few recognizable traits, but nothing is as simple as it seems.
Review these examples of why stockbrokers can’t beat the market annually every year:
- The stock market is usually unpredictable. Nobody can beat something that can’t be predicted. The market is like a bouncing football; You know where it might go, but there are too many variables to predict its exact trajectory. These changes can be good or bad for the broker and investors.
- Small changes make massive waves in the industry. Sometimes a CEO will send out a tweet, while other times, widespread, unpredictable panic leads to sudden alterations. The tiniest drop in the bucket can influence everything. Unfortunately, there’s nothing that an investment broker can do in these situations.
- The odds are stacked against them. Investopedia compares stock investors to David and Goliath. While they’re able to win, nobody thinks it’s going to work. The story goes a bit differently, but David (the broker) doesn’t see success every year. The goal is to try their best to profit while beating the market is a sky-high shot.
- Low-end brokers don’t know as much and don’t have a significant influence on the market. They’re very educated in the field, but without a massive financial cap or thousands of clients, they won’t be able to change too much. This issue is the opposite of #3 in the previous section.
- The market is out of their control. Whether it’s due to a headline, lack of a client base, or several other issues, every stockbroker has a reason that they’re not able to beat the market. Unlike many other financial industries, stockbrokers are telling the truth. It’s tough to beat the market, but it’s not unthinkable.
Although we’d all love to beat the market regularly, it’s not doable. Instead, the goal should be to find an investor who can handle your money in a way that sees a consistent 7% or higher gain. If you’re not confident in putting your money in the hands of a stockbroker, then you might’ve considered doing it yourself. Read on to find out how you might be able to beat the market.
Can Individual Investors Beat the Stock Market?
It’s not recommended that you go out and take the market into your own hands. Instead, you should seek a professional’s advice. Nevertheless, an educated investor has the same tools as a broker, so why not give it a chance?
- Pay attention to the headlines. A new war, election results, different laws, and many changes will undeniably affect the stock market. Keep an eye on the changes to know when you should pull out your money or invest it.
- Choose your investment method. According to Medium contributor Todd Lincoln, the desired return rate is 7% to 10%. If you’re able to get that much money back every year, you’re in the green area. You’re having a good time, and your money is going up as it should. It’s up to you to decide if you want mutual funds for long-term growth, pattern day trading, Forex currency exchanges, or another form of investing.
- Invest at the right time. When the market is low, it’s time to invest. That being said, never invest in a failing company. Instead, try investing in a new company or one that’s making big changes, such as Tesla when they started mass-producing economic vehicles and solar panels with Solar City.
Author’s Recommendations: Top Trading and Investment Resources To Consider
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Conclusion
Stockbrokers rarely beat the market. Even if they do, it’s not as if they had a secret, magical routine of hidden knowledge. Instead, they did what they do best: Keep an eye on the headlines, follow the patterns, and invest when they believe it’s the right time.
Here’s a breakdown of what this post should’ve taught you:
- Most brokers aren’t able to beat the stock market.
- You can increase your results by researching day and night.
- Major headlines and economic collapses influence the market more than anything.
- Make sure you’re educated about the stock market to avoid getting scammed by brokers.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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