During these times of economic and financial difficulty, many investors often ask themselves some of these questions:

-Am I investing with the right company?
-Am I investing with the right financial advisor?
-Does my advisor have access to the ‘best’ information?
-How do I know that I’m in the right investments?
-Is there some advisor who is better or more informed?
-Shouldn’t my advisor be able to beat the market?

These, and other similar questions, will always be asked by investors. Investing brings with it uncertainty and anxiety. It also brings possible hope.

When investors get upset enough, they often change companies or advisors hoping that “this time it will be better.”

This is a fruitless effort unless investing philosophy changes.

Allow me to take a variation of the last question I just proposed:

If an active manager can gather information and gain insight or knowledge through research into a company, shouldn’t he be able to beat the market?

Answer: Not necessarily.

You and I could have a different set of information or a different interpretation of the same information, while other investors may have no information at all.

However, neither of us is at an advantage or disadvantage because the aggregate of all information is already contained in prices.

So, rather than gaining insight or knowledge, the manager is simply gathering information the market has already digested.

One way to look at it is that in order to beat the market with skill rather than luck, you don’t just need to have more information and insight than the “average” investor. You theoretically need to have more information and insight than all investors combined.

An active manager has only two arrows in his quiver—market timing and stock picking.

All nuanced forms of active management ultimately boil down to some combination of these two elements. Both fundamentally rely on predicting the future, and the information presented in support of the forecast is typically quite compelling.

Statements are made such as “we think the price of oil will rise because . . .” or “we think the economy will recover next year because. . . .”

No matter how convincing the case may seem, however, you should always ask why this information that is readily available to the market would not already be reflected in prices.

Conclusion: Investing doesn’t come down to the best manager, the best company or the best advisor, it always comes down to knowing and picking your investment philosophy…and sticking with it.

To learn more, download a FREE copy of my Investor Awareness Guide right from our website.

To your investing success!