I hope you answered no to that question. The odds that you are smarter than a computer are fairly slim. IBM even built a super-computer to compete again humans on the TV game show Jeopardy. The computer easily won. If you agree that you are not smarter than a computer, then I ask why are you always trying to beat one when it comes to investing in the stock market?
If you are constantly buying and selling, trying to beat the market, you are trying to beat a computer and unfortunately, you have no shot at doing so. Nowadays, the majority of the trading that occurs on Wall Street is done by computers. They run complex algorithms to determine when to buy and sell. They have two major things working in their favor (and sadly for you, you have both of these working against you).
Why You Aren’t Smarter Than a Computer
Computers do not have emotions. When things are happening all around them, a computer has no idea and continues to do its job. But we as humans do react to emotions. Most times, it is not a good reaction either when talking about the stock market. We let our emotions get in the way and we buy at the wrong time (during the peak of the run) or we sell at the wrong time (after stocks have dropped to the bottom).
Ability to Analyze Complex Data
There comes a point where many of us can no longer comprehend certain things, including myself. This is why I never took Calculus in high school. I knew there was no way I handle it. But for a computer, complex data is a breeze. If you work with Excel at all, you know what I am talking about. A difficult formula for us to solve is done so in a matter of seconds (and probably not that long) by a computer.
As the years go by, financial data is only going to get more complex. Just look at derivatives as proof. I was a finance major and sitting in class learning about derivatives made me want to leave the room and take Calculus. You can bet the people on Wall Street are going to come up with some new “product” that will be just as complex to try to understand.
You Can’t Beat the Market
Just these two facts show that the odds of you beating the market on a regular basis are nearly impossible. So why even try? Take what the market is giving you. If you would have done that, you could have earned close to 8% annually over the past 20 years compared to the average investor who only earned 2%. You may be a bright person, but you can’t beat the market. It’s been proven time and time again.
If you want more tips for how to be a successful investor, pick up a copy of my eBook, 7 Investing Steps That Will Make You Wealthy.
Hi, my name is Jon and I run Penny Thots. I blog about many personal finance topics, but my specialties lie in investing, paying off debt, and achieving your financial goals. You can learn more about me on the Author Page.