Mats Bengtsson

You can beat the profitability of the fund managers

Mats Bengtsson mib over the years

You can beat the performance of professional fund managers by avoiding usage of old knowledge

It is interesting to know that professionals very seldom beat the performance of stock indexes:

  • 80% have a performance that is worse than stock index
  • A chimpanzee throwing darts at a wall with names of stocks frequently outperform the professionals

How come? Is it hard to do better? What can you do differently to succeed where they do not? Can you really succeed if the professionals do not

The indexes are not hard to beat

The stock indexes are not some kind of magical cleverly thought out index that defines a performance that is hard to beat. The stock indexes are normally just built up from a number of stocks selected by extremely simple rules. For example:

  • The stock exists on an exchange that poses some minimum standards on companies allowed to be on that exchange
  • The stock has a turnover of some minimum number compared to the average on that exchange

Indexes could be built in many other ways, for example based on price per earnings, price compared to revenue, relative performance last quarter, stocks favored by the current market cycle, ...

Many such indexes could easily be built to give a performance that is better than the more standard index type, so the index is not hard to beat.

Fund managers do poorly in spite of a lot of knowledge

If you know that fund managers on average are doing poorly compared to simple indexes, you need to understand why. Are they having difficulties that you will not have? Are they lacking knowledge that you will have?

  • Fund managers have access to a lot more knowledge about the market than you are likely to get, and also access to a lot more experts on the market than you are likely to get hold of. They are probably also able to devote more of their time to analyzing the market than you will be. You are thus likely to know less than fund managers about the market.
  • Fund managers have a problem you will not have (unless you are a very rich person). They need to place so much money that they will affect the market. So there is a problem of size that is normally working to their disadvantage.
  • The fund managers are likely to be questioned about their behavior. This fact is likely to affect their behavior in a negative way (causing fear). If you can keep your trading to yourself, or at least keep the pressure of "doing right" in the eyes of yourself and others low, then you will have an extra advantage.

The route to success is to ignore old knowledge when you act

Let us ignore the above fact that the fund managers have a disadvantage of size that you probably will not have. Let us instead focus on market knowledge as the main reason you can succeed better than professional fund managers.

You are as stated above likely to know less of the market than the professionals. This is the advantage you have, and it is this advantage you need to build on to succeed. Either by keeping your market knowledge low (hard to do if you trade frequently), or by learning to ignore old knowledge of the market that is endangering your trading skills. Old knowledge is a burden that hampers your performance.

Also keeping the outside pressure on your selections low is a possible key to trading better, depending on what type of personality you have. To avoid losing money by inadvertently second-guessing your trading system, you need to know that it is a sound system, fitting your personality, and that you trust the signals from your trading strategy. You need to know this, because you must let the system guide you (or decide to trade without using technical analyzis).


Never trade stocks without having tested your system. In fact, most trading systems are not profitable if tested over many stocks. Full story...

Do not invest in heating equipment without having compared the alternatives, not only to current situation, but also to each other. Full story...

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