Why You Can Beat the Market — But Hedge Funds Can’t (2024)

I recently posted an article on why I think that, if you want to retire *early*, you shouldn’t blindly invest in index funds — at least based on the expected returns coming in the decades ahead.

Needless to say, people had very mixed responses to my questioning of this popular mantra. Many kept responding how «it’s impossible for a retail investor to beat the market consistently», citing the fact that «not even the big hedge funds can». So, today I wanted to try and show why, although the statement is true, it is also used in the wrong way.

I think you CAN indeed beat the market as a retail investor, if you have the right mindset and the right tools. It’s not easy and it’s not for everyone, but it’s still doable nonetheless.

Disclaimer: the following is just my personal opinion, the contents on this article are for entertainment purposes only and do not constitute financial advice. I can’t promise that the information shared here is appropriate for anyone, nor that it will generate any returns.

Most of the responses quoted a true but misinterpreted fact: research shows that 85% of money managers can’t beat the market, they can’t outperform their respective benchmark index funds.

And that’s true, there’s no problem with that. But that statement is being used in the wrong context and needs some further clarification: it totally ignores the reason WHY they don’t beat the market, and why retail investors are not money managers.

Size DOES matter in this case

The first reason for this was even explained by Warren Buffett himself:

«If I was investing $1 million today, or $10 million for that matter [instead of hundreds of billions], I’d be fully invested in the market. Anyone who says that portfolio size does not hurt investment performance is simply selling their services. The…