You know that it is difficult to beat the buy and hold (simple) strategy with any of your own strategy. Many fund managers fail to return better returns than the S&P 500 because they end up doing worse than buy & hold. But you have an edge over them to beat buy and hold. What is the right stock trading strategy then? How can you beat buy & hold and earn better returns from stock market than fixed income investments? Read on to find out.

Billionaire trader Gordon Gekko (fictional stock trader in Wall Street), says they don’t have something to beat the S&P 500 (in other worlds simply buy and hold) when referring to fund managers.

Looking at the last decade full of stock market meltdowns many would conclude buy & hold is very dangerous. When one looks at the periods of bull markets alone, would realize that buy & hold indeed is the best performer than other equity based funds. You would rarely find a sector or sector based mutual fund that does better than an overall average market. It is because the fund managers can’t just use simple strategies to enter or exit without weighing down/up the share prices by their own weight (huge capital problem)

What is your Edge to Beat Buy & Hold over Fund Managers?

Your advantage over investment institutions or fund managers is the size of capital. For the same reason you wouldn’t have to look for insider trading as portrayed by Gordon Gekko. He had lot of money to invest. So he couldn’t just look at charts and trade. He had to be right to apply his weight on the stock price and still make profits.

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For you with small capital, you don’t have to worry. Small is relative to millionaires. You just have to make your way through opportunities when stocks make moves just because of the influences of the heavy weight or fat fund managers.

How to Beat S & P or Buy & Hold?

The question is not really, “How to Beat Buy & Hold Strategy?”, but “How to consistently beat the Buy & Hold Strategy?” Is there a simple stock trading strategy to beat the buy & hold?

Yes there is for the small trader/investor. You can follow simple chart patterns without the added complexities of technical analysis. Just follow candle-stick charting, moving averages and volume indicators.

There are candlesticks to indicate strength/weakness in current trend, changing trends, moving averages to indicate stop losses or trend confirmations, volumes to add third independent confirmation.

Well, these are also available for large investors. Then how are you different? The large investors can’t simply bank on these indicators because most often these indicators are the result of their actions.

As Gordon Gekko (Micheal Douglas) says, stock market investing is a zero sum game – someone must lose to make someone profit, this is the right strategy to consistently beat the buy & hold. But unlike the film, someone must not really lose because that someone (the fat investor) already accounts for these small traders’ profits as cost of purchasing the stocks or making entry. So don’t feel guilty about this.

Good luck with your stock trading/investing and read more of my articles on stock trading ideas.

Disclaimer: Stock market trading is not a game of kids. Hence always caution is advised as the stakes are high. Use your discretion and cautiously invest in stocks/shares. The following are author’s views only.

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