Just Beat the Market

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By Har1en
February 14, 2008

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I really don't give a fuddy-diddle whether the market is up in three years. The market's overall performance has no bearing on how individual stocks perform; it's the other way around. And there are winning stocks in every losing market, just as there are losers in every winning market. In three years, I will still be buying for my retirement. The cheaper the index is then, the more likely it is that I will be buying it cheaply. I will not retire (and start being a net seller of stock) for at least 17 years using a 10% compound aggregate growth rate for my plan (and I am working hard at beating that). Keep in mind that the current PE of the S&P is around 18 or 19, I think. Pretty pricey on a historical basis. People like me who invest in an "index plus a few" are going to be buying the index at a fair price today, not super high, but not low either.

What matters to me is that I beat the market rate of return. Remember, wealth is relative, and most people don't even get the market rate of return. I care that the individual stocks that I have chosen will beat the market, and that I match the market in my index for safety.

Seriously, I add my encouragement to the others who suggested that you go and read up on the resources in the Fool's learning section about investing in general. Why might you want to do this?

1) If you haven't heard of "index plus a few," and whether you might want to use that strategy or not.
2) If you have no idea why a stock might move on it's own compared to indexes.
3) If you are unfamiliar with what the term 'diversification' means and how to benefit from it.
4) If you are unfamiliar with the term PE, compound growth rate, or why it's better to invest in an index tracking fund than 80% of mutual funds.

If any of what I just wrote is unfamiliar to you and you are nonetheless buying stocks, then you are playing with a loaded gun with Vaseline on your fingers in a house full of Ming vases.

Also, if you are curious as to why Netflix does what it does, read the last 500 posts or so, or if you are impatient, go to Best Of and choose the top 50 or 100 messages in the NFLX board and read up. Many of your questions will have been asked and answered there.