For many investors, investing into an index fund such as the Vanguard Australian Shares Index ETF (ASX: VAS) is the cheapest and most convenient way to get broad exposure to the ASX 200.
For those called to a higher calling, beating the index is possible and here are two tips that I think could help you on that journey:
- Think independently
- Do your own research
The daily financial news cycle is typically driven by fear (that's why talk of corrections, bear markets and recessions constantly dominate the headlines) and so it can be very difficult to tune out all the noise.
There are many companies that split opinions and if you can't do your own research and think independently, it can hurt your returns.
For example, is the Afterpay Touch Group Ltd (ASX: APT) share price about to go gangbusters after their US & UK expansion or is it going to flop due to new regulations?
Are the banks Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) going to benefit from rising interest rates or will the income from higher rates be offset by higher loan default rates?
Thinking through these types of questions and making informed decisions can help you to distinguish between justified and unjustified market drops.
Unless you are thinking objectively and independently, it's easy to become swayed by popular opinion and sentiment.
As the legendary investor Howard Marks reminds us, the best returns are not made by following what everyone else is doing. However, it's not enough to just be a contrarian. You must be a contrarian and you must be right.
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