Can you (yes, you) “beat the market”?
The question is as old as modern investing: can the average investor outsmart “the market”?
The appeal is both obvious and exciting. Few things sound more exciting than timing financial markets perfectly by buying low, selling high, and pocketing profits (for some, it’s especially delightful to win while others lose). It’s the stuff of Wall Street (and now, Main Street) legends and cocktail party bragging rights, but what does the evidence actually say about beating the market? Can non-professionals (or even professionals) consistently pull it off? And most importantly: should you even try?
What Is “The Market”?
When people refer to “the market” they generally are referring to the Standard & Poor index of the largest five-hundred companies in the United States in terms of their market capitalization (which is the number of shares multiplied by the price), often called the “S&P 500”, or just “S&P”.
The S&P 500 is the most common yardstick investors use to see how well they’re doing because it tracks 500 of the biggest companies in the U.S., across many industries like technology, healthcare, and finance. Because these companies make up about 80% of the total U.S. stock market, the S&P gives a clear picture of how “the market” is doing overall.
It’s also been around since the 1950s, so investors, news outlets, and fund managers have used it for decades. Over time it became the default benchmark and implies that if your investments can’t at least keep up with the S&P 500, you’d probably be better off just buying an S&P 500 index fund (which can be purchased as an ETF easily on investment platforms). That’s why when people ask, “Did you beat the market?” they almost always mean the S&P 500.
The Evidence Against Market Timing
Joshua Coval and David Hershleifer (2021) reviewed the performance of individual investors and reached an unambiguous conclusion: market timing is overwhelmingly unsuccessful for the average investor. Metcalfe (2018), a mathematician, put numbers to intuition. His modeling showed that: “The most probable outcome from market timing is a below-median return—even before accounting for costs.”
That’s before you even consider transaction fees, taxes, or opportunity costs. Add those, and the odds tilt even further against you.
So if the math says you’re likely to lose, why do so many people still try? A first guess is that most people don’t read academic papers, much less heed their warnings. The first paper that caught our attention about self-directed investors was published back in the 1990’s and showed that people tend to sell their winners too soon, and not sell their losers fast enough (Odean 1998). If you’re interested in behavioral finance, do check it out (here’s a link to the paper).
Do the Pros Do Any Better?
Even professional money managers armed with teams of analysts, proprietary data, and sophisticated models struggle to beat the market. One strategy in particular, Tactical Asset Allocation (TAA), aims to shift portfolios toward asset classes expected to outperform in the near term. While the theory makes sense, the results are mixed:
- A few funds do beat benchmarks
- Most fail to consistently outperform after fees.
- Many look indistinguishable from random chance.
If professionals with armies of quants can’t reliably time markets, the case for individual investors looks bleak.
But Here’s the Twist: Some People Do Succeed
The story doesn’t end there. Research by Chiu, Hsu, Lai, and Wool (2021) on Taiwan’s retail-dominated futures market found that a small minority of traders do display genuine market timing skill. This suggests that while timing is very difficult, it’s not impossible. The problem is figuring out whether you’re among the skilled few, or the majority subsidizing them.
A fun way to see what type of investor you are is to take the Prof of Wall Street quiz! Click here for it.
Why We Believe We Can Beat the Market
Here’s where helpful behavioral economics research comes in. Human beings are wired to believe in their own agency and skill, even in random environments.
Behavioral Biases at Work
- Overconfidence Bias: Most traders think they’re above average — a statistical impossibility
- Illusion of Control: We believe that careful attention, charts, or “gut feel” can let us control outcomes, even in systems dominated by randomness.
- Recency Bias: A few good trades convince us we’ve “figured it out,” ignoring that luck often clusters
This helps explain why people persist in market timing despite overwhelming evidence against it. It feels good. It feels skillful. And sometimes, it is — but rarely consistently.
How to Actually Know If You’re Skilled
This is where measurement matters. Without hard data, it’s impossible to tell whether your success is skill or luck. At Prof of Wall Street, we’ve developed an analytical tool to answer exactly this question: Do you personally add or subtract value through the three major pillars of stock picking, position weighting, and active management?
Here’s how it works:
- Trade History Analysis: We line up your past buys and sells against actual price movements.
- Customized Calculations: We measure how much of your returns came from the three primary pillars vs. simple market exposure.
- Your Upside Score: You get a personalized score that quantifies your strengths and opportunities for growth for each pillar
The result: you no longer have to rely on intuition or selective memory. You’ll know whether your timing is adding value, subtracting value, or just noise. To our knowledge, this is the first time that investors can get behavioral analytics at scale, a tool that can help them improve their future decisions plus expert human support.
What to Do With That Knowledge
High Score (Skilled Minority)
- Congratulations! You may be one of the rare traders with genuine edge
- Consider allocating more to strategies where you’ve shown consistent skill
- Stay humble — even skilled traders can go through unlucky streaks.
Low Score (Eroding Performance)
- Recognize that your decisions are hurting your returns
- Either improve systematically (training, rules-based strategies, behavioral checks) or reduce this activity
- Shift resources toward long-term investing approaches and/or ETFs where time, not timing, is your ally.
Middle Score (Indistinguishable From Random)
- It might be the case that you treat timing as entertainment, not strategy
- If true, allocate only what you’d be comfortable losing in pursuit of the thrill.
The Bigger Picture: Why Are You Really Investing?
It’s tempting to reduce investing to a game of outperformance relative to the S&P (or your friends). But financial planning teaches us something deeper: The real purpose of investing is to align your money with your life goals and to allocate money and time accordingly. It’s not about bragging rights at a dinner party. Self-directed investing can be thrilling, and there’s nothing wrong with enjoying it. Just don’t let it dominate your portfolio to the point that it undermines your future.
What This Means for You
So, can you beat the market?
- Probably not, if you rely on intuition, luck, or hunches
- Maybe, if you’re part of the small minority with real skill
- Definitely, if you define “beating the market” not as outperforming an index, but as achieving your financial goals
The takeaway: Don’t fly blind. Know your ability, measure it rigorously, and allocate accordingly after having your investment history analyzed by Prof of Wall Street. Then, whether you’re a skilled timer or not, you’ll be a smarter investor for it.
Where to Go From Here
- If you’re curious, run your portfolio through our analysis tool and see your personal score
- If the analysis suggests you’re skilled, double down on what works
- If analysis suggests you’re not, protect yourself by shifting focus to long-term strategies and away from areas that are difficult to improve on (e.g., stock selection)
In the end, the market doesn’t care about our hunches, hopes, or headlines but it does reward discipline, clarity, and self-knowledge. Whether you’re one of the few with true skill or part of the many who would be better off simplifying, the key is to stop guessing and start measuring. Beating the market isn’t the real prize; building lasting wealth and confidence in your decisions is. And that’s a win every investor can achieve.
References
Chiu, Shean-Bii, Jason Hsu, Hsing-Kuo Lai, and Phillip Wool. 2021. “Market Timing Skill and Trading Activity in Taiwan’s Retail-Dominated Futures Market.” The Journal of Portfolio Management. https://doi.org/10.3905/jpm.2021.1.249.
