They say the market is a mystery, a wild beast impossible to tame. But what if there's a secret weapon, a hidden key to unlocking consistent growth? Buckle up, because this week, we'll challenge the status quo and explore strategies to become an Investing Monk.

In today's issue:

• 📊 The Efficient Market Hypothesis​
• 🚀 The Case for Active Stock Picking
• ⚠️ Facing The Market Beating Reality​

And More!

Let's get started:

📊 The Efficient Market Hypothesis

In theory, financial markets process and reflect all available information with high efficiency, making it nearly impossible for any investor to consistently outperform.

For example, if a company's CEO suggests in an interview that sales may fall the next year, the stock price will go down right away to reflect this new information.

People who believe in the EMH say that all the information about a stock is already taken into account in its price.

There's no point trying to beat the market.

For EMH supporters, this is why passive investing strategies, like index funds, do better over time than most active management strategies.

One strong piece of evidence for the EMH is the fact that over long periods of time, only about 10% of individual investors are able to beat the market.

People often use this fact as proof that markets can't be consistently beaten.

From this point of view, most investors would do better if they used a passive strategy that followed the market rather than trying to beat it.

Despite the EMH's strong arguments, critics say that markets are not always as efficient as they seem.

🚀 The Case for Active Stock Picking

They say that fear, greed, panic, and other human emotions can make markets act irrationally, which smart investors can use to their advantage.

Active management supporters say that smart investors can get long-term returns that are above average. They say that even though fundamental analysis is hard, it can be done well with disciplined behavior and analysis.

One of the main points they make against the EMH is that there are investors like Graham, Buffett, and Lynch who have beaten the market over and over again for decades.

EMH supporters say that these examples are statistical outliers, but critics say that their success shows that markets can be beat with disciplined analysis.

Too many people don't follow the rule, though, besides Graham, Buffett, and Lynch, which is bad news for supporters of the EMH.

⚠️ Facing The Market Beating Reality

As we saw before, only a very small percentage of individual investors (about 10%) beat the market over a 10-year period.

Yet, there's more to this statistic than meets the eye.

According to research by Timothy van Doore, a big reason why retail investors don't do as well is not poor stock-picking, but rather poor timing.

Since 1984, about 70% of investor underperformance happened during just 10 limited periods when investors got scared and pulled their money out of the markets during crashes.

This means that most investors could have done better than the market if they had stuck with their investments during bad times instead of selling out of fear.

The common belief is correct about the what—the average investor does not outperform the market—but not about the why—it is not their poor stock picking skills, but rather their poor market timing.

It turns out that picking the right stocks might not be enough to beat the market. You will also need to be able to keep your cool and stick to your plan during market turmoil.

✅ Yes, You Can Really Beat The Market!

While the Efficient Market Hypothesis is a compelling argument against the possibility of beating the market, real-world experience suggests that it is actually achievable.

While markets may be efficient in the aggregate and over time, there is plenty of evidence of short-term irrationality, emotional biases, and market inefficiencies that savvy investors can take advantage of.

My own personal experience as an investor—with 20%+ yearly returns for over a decade—confirms this.

So, yes, I strongly believe you can beat the market over long periods of time by combining sound stock selection with disciplined execution, and the right mindset.

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Have an amazing week and... happy investing!