If you beat the S&P in a bear market, can you still lose your shirt? Too many investors have found out the affirmative answer to that question. What seems like an excellent investing goal during a bull market -- beat the S&P -- can become a perfectly lousy goal during a bear market. Find out what the real goals of investing should be in this excerpt from Bob Prechter's latest issue of The Elliott Wave Theorist.
Want To Bust Some More Market Myths? To understand how the market really works, you need to see through the myths that have sprung up during a long bull market. This excerpt outlines just one of the 14 market myths that Bob Prechter busts in his monthly publication. You can read the rest of them in the May issue of
The Elliott Wave Theorist.
* * * * *
The "Beat the Market" Fallacy
During long bull markets, a myth develops that a money manager’s goal is to match or beat some benchmark for a market that is rising. This judgment bias explains why investors in recent years came to believe that a proper benchmark against which to judge money managers was the gain or loss recorded by the S&P index. Although “beating the S&P” became a popular basis upon which to judge performance, it is bogus.
The fallacy of this belief is nakedly exposed in a big bear market. Even money managers who succeed at their stated goal of beating the S&P can ruin your retirement. In the real world, customers are (surprise!) devastated if they lose half their invested capital, even if the S&P falls even more than that amount, say, 58 percent. How can this be, if the sensible, proper goal is to beat the S&P? Well, that is not a sensible, proper goal.
The goals of investing should be (1) to keep money and (2) to make money. Money managers who successfully protect your capital and make money for you in changing environments are truly serving you. Those whose goal is to beat the S&P will eventually serve you up….
Want To Bust Some More Market Myths? To understand how the market really works, you need to see through the myths that have sprung up during a long bull market. This excerpt outlines just one of the 14 market myths that Bob Prechter busts in his monthly publication. You can read the rest of them in the May issue of
The Elliott Wave Theorist.