Can you beat the Stock Market?

…unless the stocks you own ARE beating the market!

2002-10-09-sydney-bear-bull-stock-markets-like-flock-530.JPGThere is no way on earth you could ever beat the market if the stocks you hold are not keeping up with the market. And hopefully, staying ahead of the market.

But yet, that’s what lots of people try to do. They’d rather keep all the dogs in their account and maybe “take a flyer” on one stock, hoping for a miracle. It’s like trying to win a Derby horse race with your Donkey. It just ain’t gonna happen.

But hey, maybe you don’t want to beat the market overall. Maybe you just want to own the BEST semiconductor stocks, or the best retailers, or the best utilities.

Seriously, how would you even KNOW if your stocks or mutual funds are beating the market, or are the best names to own in their group? Well, I can tell you this…the best indicator I’ve ever seen in twenty-plus years in the business has been relative strength. What is relative strength? It is simply the measure of how your mutual fund or stock is doing, compared to a group of other stocks, funds or indexes…or the market overall.

Perhaps you want to compare Intel with other semiconductor stocks. Maybe you want to compare Microsoft with the S&P 500 Index. Maybe you want to compare your mutual fund against the Dow Jones Industrial Average or the Standard & Poor’s 500 Index.

This is a very easy calculation. Here is how you do it: Simply divide the price of your stock or mutual fund against whatever yardstick you choose. You’ll get a fractional number as the result. But slide the decimal over so you can work with whole numbers. Then we begin plotting that result daily on a point & figure chart.


These relative strength charts move much slower than a typical chart. Anything going up over time will be in a column of X’s. Anything going down will be in a column of O’s. If you want to significantly improve your chances of beating the market, the index (or whatever yardstick you choose), it MUST be in a column of X’s and preferably be giving buy signals.

Why is this so? Well, if your stock or mutual fund is climbing in a column of X’s against the market (or a group of its peers), it HAS to be outperforming the yardstick, right? It cannot go higher unless it is rising faster than the market overall.

Now, if your stock or mutual fund is going down against the yardstick you are using, it means your stock or mutual fund has poor relative strength compared to the index you are plotting it against. Poor relative strength is something to be avoided.

Here’s why: When the market starts falling apart and things look bad, stocks and mutual funds with poor relative strength (or on a relative strength SELL signal) will usually fall further, faster than the rest of the market.

Now, stocks on a relative strength BUY signal can also fall with the market. But our experience has shown that stocks with good relative strength (or on relative strength buy signals) usually don’t fall as far as the market overall. They are also are the first names to bounce when the market recover

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6 Responses

  1. Shane says:

    Great picture Robin! Says it all.

    My favorite coffee mug is covered in sheep. It tends to make people stand up a little straighter for some reason 🙂

  2. Robin Bal says:

    Hey Shane,

    Thanks mate, I think I know the reason why people stand a little straighter when they see your coffee mug 😉 . Wonder how people would react if your coffee mug was covered with bulls 😆

    Take care and Cheers.

  3. Shane says:

    That’d be an interesting experiment actually. My guess is, the same, but more defensive.

    But it would be pretty cool to pit “reverse psychology” against “psychology” and see what happened. 🙂

  4. Jag says:

    Hi Robin,

    I agree with you that beating the stock market is difficult, thats why I always recommend to my friends who are not so savvy in stocks who want to invest to buy index funds, as it has minimal load and mirrors the market performance.

    Sometimes if you can’t beat ’em, you join ’em! If you can’t beat the market, be the market.

    Then again, while it is difficult to beat the market, it is not an impossible task.

    Just to share with you, I use the simple 50 and 200 days moving average in my analysis. I try not to use too many indicators as they will only confuse with their conflicting signals!


  5. Robin Bal says:

    Hi jag,
    Hi Jag,

    I always love your comments on my investment posts mate. Nothing is impossible, so beating the market is not impossible either.

    Longer moving averages definitely are more confusing, 50 to 200 days is just about correct.

    Take care and cheers and thanks for the great comment.

  6. forlan says:

    so what we can do in recession time

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