Individual investors are bombarded with a negative message that they can't beat the market. Fortunately, the financial services have a solution to this problem. Individuals are encouraged to buy index funds that always lose as much as the broad stock market does in a bear market.
Actually, the marketing pitch for index funds ignores bear markets. Ads focus on bull markets where the funds guarantee mediocrity, but rather than saying that, fund promoters promise they will match the market, less fees and expenses.
When University of Chicago professor Eugene Fama was awarded the Nobel Prize in economics, the Committee recognized him for work that demonstrated investors can beat the market.
Working with other researchers, Fama has shown that value stocks beat the market in the long run. Economists have proven that buying stocks with low price-earnings (P/E) ratios or any other method of buying value stocks will beat the market average.
Great value investors have been proving this for years and the academic community has proven this for decades with math that demonstrates the success of value investing is not due to luck.
The explanation is simple enough for individual investors. Value investors remember Warren Buffett's wisdom that "Price is what you pay. Value is what you get." They only buy when stocks offer value and they sell when the price is too high.
Individual investors don't need to understand the math behind Fama's impressive ideas. All they need do is stick with a value investment strategy to enjoy profits in the long term.
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