"Beating the market" is a difficult phrase to analyze. It can be used to refer to two different situations.

Investor's Portfolio

An investor, portfolio manager, fund or other investment specialist produces a better return than the market average. The market average can be calculated in many ways, but usually a benchmark – such as the S&P 500 or the Dow Jones Industrial Average index – is a good representation of the market average. If your returns exceed the percentage return of the chosen benchmark, you have beaten the market.

Company's Earnings

A company's earnings, sales or some other valuation metric is superior to that of other companies in its industry. How do you know when this happens? Well, if a company beats the market by a large amount, the financial news sources are usually pretty good at telling you. However, if you want to find out for yourself, you need to break out your calculator and request some information from the companies you want to measure. Many financial magazines do this sort of thing regularly for you - they'll have a section with a title like "Industry Leaders." We don't suggest you depend on magazines for your investment picks, but these publications may be a good place to start when looking for companies to research.

The Advisor Insight

This phrase isn’t the most accurate statement in the world of investing because there are so many different markets. Most people will just compare performance to the S&P 500, but if you truly want to understand how well you are doing, it is better to compare the securities (stocks, mutual funds, ETFs) to how they are performing against a benchmark, the index that best represents the same asset class. For example, if you have an emerging market mutual fund in your IRA, you should compare that fund with an emerging market index. You would not compare an emerging market mutual fund with the S&P 500: They share none of the same stocks, the listed companies frequently contend with different risks and opportunities – and their nations’ economies and political environments can vary widely as well.

Nickolas Strain
Halbert Hargrove Global Advisors, LLC
Long Beach, CA