Skip to content

You Can’t Beat the Market

You Can’t Beat the Market

You’ve surely heard of Warren Buffet, but have you ever heard of Ben Miller? He is a successful investor most known for his portfolio management strategy that beat the S&P 500 for 14 years straight (1991-2005). Miller attributes his achievement to the same concept that made Buffet his billions: its time, not timing.

Join Matt Robison and I on this week’s podcast to learn why your odds of beating the market are slim. In particular, we explore:

  1. Market Efficiency – It all balances out in the end meaning there will be winners and losers. If you want to be a winner, there are fees that come with having an active fund manager looking for ways to get you that extra return, which usually leads to a net zero.
  2. Differentiation – Still want to try and outperform the market? You have to have a different strategy that is also better than everyone else’s. 

There is a simple strategy to winning – don’t try. Invest in low cost index funds and let the market do its job and make you money. 

Don’t just take my word for it, check out this piece from Howard Marks.

Learn more about Mike and my services at and connect at

Are you ready to create your ideal lifestyle? Let’s Connect.


Matt: 00:00

Welcome to real financial planning broadcast on WKXL and available wherever you get your podcasts. I’m Matt Robison, and I’m joined always by Mike Morton of Morton financial advice also the host of financial planning for entrepreneurs now standing podcast, this show is also in the capital closeup podcast feed. Mike, I was just belly-aching to you a moment ago that I don’t like the name of this show this segment where there’s on radio. It’s a segment where it’s a show. I don’t like it. I don’t like it, I don’t want to do real financial, what the hell does that mean? I don’t know. I don’t know. I don’t know what makes it real. I beg our listeners, hit us up on Facebook, email, Mike, come up with something better. Now, don’t be flip about this. Because I’m sure you’ve got lots of…

Mike: 00:47

No, I think they should, I think they shouldn’t be floored. It’d be great.

Matt: 00:51

Send those guys as is that’s fine by me, I will take all of your ideas bothers me about the name of the show is that we most definitely talk about financial topics and financial planning. I’m not trying to like, hide the ball on people here. It’s just I think what we’re going for is something a little bit broader what you do with your clients a little bit broader to it’s much more about managing your life and kind of meeting your goals and the money part comes second. But anyway, that’s my spiel of the day.

Mike: 01:20

Yeah, I totally agree with you, we definitely need a new name. We’ve been talking about that forever. The whole real financial planning became out of the fact that I think this whole industry of financial planning, financial advice is all upside down. It’s 90%, 95%, insurance brokers, broker dealers, making commissions off products, it’s something that just don’t agree with. That’s why I jumped in to do what I do. And so that’s where the word real because I believe that the value I provide lots of other hundreds and 1,000s of other great advisors provide real value to clients in their lives that make a difference in their lives without charging them. They don’t really like or as you put it, hiding the ball hiding the fees where and how you’re paying for that quote unquote, advice? And is it the best advice for you? Or is it oh, yes, Mr. Robison, I do see that you could use life insurance? And here’s two different choices for you choice A or B? Not even do you need it to begin with. So depending on how your incentives are, of course, they align with how you’re getting paid. So anyway, that’s where the word real, doesn’t make any sense.

Matt: 02:27

So like, people just seen it a title of the show, right? Everything you just explained is correct. And also, it’s not captured in the word real. But I think that is the point. That is the point, I promise, I’m going somewhere where this actually connects to the topic of today’s show. But that really is the point is that you and I both come out of economics training, you obviously took that much, much farther and in your work and what you do, I went a totally different direction. We learned early on that a lot of what is provided out there is you hand me your watch, I tell you the time type services, and you know what you’re really looking for isn’t so much of the financial advice. It’s the peace of mind of, hey, this is what I’m trying to achieve, how do I do that? Most people aren’t here for the mechanics, they don’t want to, if you go to your auto mechanic, like you don’t want a litany on on the usefulness of the sparkplug, you can want the car to run. And that’s what people come to you for. And anyway, that’s what the word real is meant to capture is that it’s about financial planning. But it’s really more about what’s what people are really looking for, and what you provide what we try and talk about in this show. All right. Can I make the bridge here?

Mike: 03:33

All right, go for it. Yeah, make it happen.

Matt: 03:36

So the bridge today’s topic is, and I’m not insulting your colleagues in the financial advising space by saying this. But the bridge is something that you know, and I know really well, anyone who’s gone to a econ 101 course knows this. You can’t beat the market, which is why you should be really leery of any promise that you’re going to do better than the market. You’re not. So we want to unpack that today. You probably heard that before. You can’t beat the market. Why can’t you and what does that mean? Why is it important to understand that? Why don’t you give people the top line on this? Yeah, why can’t you beat the market.

Mike: 04:15

So the market, we’re talking about the market, or we’re talking about the stock market, the investing market could be US stock market worldwide markets, we now have these things called index funds. You’ve heard all about them on this podcast, you’ve read about in the news, if you bought an index fund of the total stock market, that is the market so you have bought the entire market, and therefore you’re gonna get the market returns if it goes up 10% This year, or if it goes down 5% this year, that’s going to be your return as well. And so you’re getting the market return, you’re definitely not going to beat the market. If you own a total US stock market index funds because you are buying the market by definition, you could do other things. Instead, you could decide I’m only going to invest in big companies. I’m only going to invest in technology company I’m only going to invest in your European companies, you could do something different than a total market. And the point in this episode is to break down why you can’t beat the market. And here’s why, all right, we have 1000s, hundreds of 1,000s of people participating in the market, right? Some people just buy those index funds. But there’s lots and lots of people buying different things. There’s actively managed funds, there’s people buying more conservative just buying bonds, there’s people just buying stocks, just investing over investing in technology owning single stocks, there’s lots of people that are not buying the entire market, they’re buying segments that some people buy, and some people sell, there’s always someone on either side of a trade. And so someone if there’s Matt, and I decide, like, Matt says, I’m going all in technology, and I say, I’m going all out of technology, we’re on opposite sides of that, and one of us is going to be right, in one month, one year, five years, one of us is going to be more right than the other person on that trade. And so, therefore, when you take all investors across the entire market, we have what we call the efficient market, all investors in the entire market have to get market returns. Okay, Matt, and I, we might be the only two investors, he takes one side, I take the other, by definition, we’re both going to get market returns, one’s going to be better and one’s going to be under but the average of all our returns is the market return, half the people are going to do a little better, half the people are going to do a little worse, by definition, you have to get market returns. So now we get into and I’m gonna pause here so Matt can ask some questions. But you’re gonna get into this whole thing, why can’t you beat the market? Because one, by definition, everyone has to get market returns. So you’re like, but I’m a little bit smarter than the other guy sitting across from me, I’m definitely gonna beat that guy, we can have that discussion. And secondly, the big point is, there’s probably fees involved. All right, I told you, you could buy the total US stock market and you’ll by definition, get the total market return minus the fees. And the more different you become from the total market, you guys will know this, the higher the fees, actively managed funds, other ideas and strategies, things that you might be pitched on or something, they are going to have bigger fees associated with them. So like, I’ll pause there and let Matt jump in with probably 10 or 15 questions he’s already thought of.

Matt: 07:21

Yeah I’ve got 10 or 15 points. Just to sum up what you just said, there’s all kinds of famous phrases that capture it. There’s the idea that when you ask people to rate themselves as a driver, everyone rates themselves average or above. That’s mathematically impossible.

Mike 7:39

80-85% of drivers are above average, exactly.

Matt: 07:42

Just scratch your head on that one for a second. Or if you’re a fan of late opera, which I am, there’s the Gilbert and Sullivan line, if everybody is somebody than no one’s anybody, right? We can’t all be special. But I mean, you, dear listener, are very special. But we can’t all be very special in the same way. Because by definition, if we all are, then none of us is. So I take your core point here. But let me just think, about what you just said, there’s a hidden caveat, there’s a very important disclaimer to that. And maybe we should just hit it right now. Which is, in the long run, economists make a big distinction between what they call the long run and the short run, and they don’t define it super well. And just a moment ago, you said over a month, a year, five years, even you do this for a living even you are slippery. If I asked you what’s the long run, you’d say,

Mike: 08:44

Oh, you know, it’s it’s only 23 and a half years.

Matt: 08:48

That’s a long ride. If it’s your kids recital, and the other kids are going, that feels long if your kid’s going to feel short. So anyway, but the idea here is and I could hear people pushing back, it’s like, wait a second, if you can’t beat the market, then why do people do anything other than buy the index? And the answer I think I’m going to turn this into a question to you is you can beat the market in the short run. And in fact, high volume traders that position themselves, you can go Google this, if you’ve never heard of this before. Like they position themselves with the super high bandwidth connections to the market computers, and they go like right across the river in New Jersey, so that they can make trades on the order of femtoseconds like millionths of a second faster than everyone else. They can beat the market, because they’re in the super short run. But the point is, if you’re looking over the long run, no, you can’t in a day, could you make a bet on something and be right and beat the market that day? Sure. You can be right in the short term, but over time, it’s like the same reason that you’re not going to flip a coin and get a million heads in a row.

Mike: 10:00

Yeah, I think it’s a really good point. Again, I do want to highlight this because it’s really important as well, the entire market, I think of all the investors in the entire market are getting market returns. Okay, that statement makes sense, like everybody that’s participating, is going to get market returns on average. And so I do think one thing to think about for the listener is, you know, what you were saying, do you think you’re above average? Do you think in the long run, I have a strategy or something that will make me above average, over my lifetime, and to really think about that is hard. And we can talk about why that’s definitely not the case. Because there’s people that have spent their entire lifetime only working in this sector only doing these things, and you’re probably not doing that. But to your point, the timeframe matters tremendously. And I’m not saying there aren’t strategies that can be successful over time. There definitely are. So you mentioned one, those high, the high speed traders, there’s things called value investing, I’m a fan of it is a little bit different than just investing in the total market. There’s other strategies using small companies or other things you might have heard of strategy can definitely do really well, in the long run, and may or may not beat the market. The point with a strategy, if you’re going to go that route, is you have to stick with that forever, I really strongly believe you do not want to switch strategies every two years and two years is a long time for an investor. You don’t even want to switch strategies, every two years, even strategies go in and out of favor. So these high speed traders have a strategy, and they’re gonna stick with it. And hopefully, it keeps working, it’s not going to work all the time. But you’re like the casino, you’re you are the house, you’re trying to just get that 55% over every year in and year out to hopefully get a little bit ahead over time. So even when we’re talking about strategies to try to beat the market, make sure you have a strategy you believe in that you can stick with for decades.

Matt: 11:52

This is a little bit of a sidebar, but it relates back, I read this great analysis a few years back, that blew my mind, take Warren Buffett as an example. And basically, he has a brand as the smartest investor in the world. And their point was that’s possible. Maybe he knows something that your average bear doesn’t. Sure. But also, if you were to randomly run an experiment where you took a million people, a million investors, what you would find over time, is that just by pure random chance, one or two of them would do amazingly well, one or two of them would get incredibly unlucky. And it would have that bell curve shaped distribution, where most people would be within a statistical standard deviation or to have the fat center, the middle, the average. And that’s what you find in the market. So it’s possible that Warren Buffett knows a lot more than the rest of us. Or it’s possible that he’s just really lucky that he won that kind of like lottery of the universe that he happened to break right on, on his decisions over and over again.

Mike: 13:05

Yeah, but exactly, you’ll find that either way. We don’t know the answer. But either way, there’s definitely going to be hundreds of people, just like Warren Buffett, that over their lifetime, they make tremendous bets, and they all pay off over over a lifetime. And they do tremendously well. I mean, the same is true in any field, you got sports players and stuff that are tremendous athletes, gifted athletes. So of course, there’s going to be gifted people in the market as well, that just happened to really intuitively understand maybe what’s going on or how they can do better, or whatever it is. And they do that. So there’s definitely those people and we anchor to those stories out. We know Warren Buffett, we know some other great investors. And it sounds very simple what they do. Let me also tell you this about Warren Buffett, which I think we’ve mentioned on the show, he’s only, yet for all the reasons, the only reason you know his name. I’m serious about this, too. If he had retired at 65, a lot of people like to finish their job and do something else you would not know his name. Literally, he would not be in the news, you would not know his name at all, he has made over 90% of his fortune, since he turned 65 Because he has invested starting at age 14 for nine decades. It’s crazy that it’s the compounding and he’s not the best investor. I’ll put a show I forget I’m blanking on the name, I’ll put in the show notes. There’s another investor that has double his returns average yearly returns, you don’t know his name, because he did it for 40 years and not at xy

Matt: 14:35

And look at I think this just goes to the point of we’ve talked over and over again on this show that if you want higher return, you can get it but you have to take on higher risk. And you’re essentially rolling the dice and sure there will be people who will roll double six a bunch of times in a row and most people won’t and you’ve said on the show before, what’s the statistic you give? That’s, that’s so good that 80% of funds underperform the market average.

Mike: 15:09

Yeah, you can go to the SPIA S P I A, and they have a bunch of different statistics on actively managed funds versus index funds. And when you look out about 20 years and large cap funds, which just like total US market, mostly big companies, only about 10 or 15%, will outperform just the index fund over time. Now, again, the big reason for that as well is the fees, okay, you cannot minimize taxes, and fees are for real, they have real drag on your portfolio year in and year out, and you just can’t over state, how important those things are to your returns. Are you ready to create your ideal lifestyle? Let’s discover what’s most important to you and design a plan to have more of that in your life? Go to meet Mike All one word, meet Mike

Matt: 16:09

All right, so let’s say you’re listening to this. And you say, no, I am determined, okay, this is gonna happen, I think I’m hearing from you. And maybe I’m wrong about this, you tell me I think I’m hearing three exceptions to the rule, you can’t beat the market. And so I’m guessing that what you’re going to tell people is, you got to decide if you fit into one of these three categories. So one category would be, you are able to exercise some kind of an advantage that everyone else doesn’t have in the short run. So maybe you are one of those traders that’s connected on that femtosecond advantage line. If you’re in that position, congratulations, you’re already beating the market, you’re a billionaire. And I’d like to invite you to invest in this show, or you are the kind of person who does deep research and is really into value investing. And maybe Mike, you want to talk a little bit more about that and you really understand something that the rest of the market doesn’t. And that’s going to give you an informational advantage, by the way, certain types of informational advantage are called insider trading, that’s against the law, we are against you breaking the law, don’t do that folks. And then finally, there’s a third category, which is you could follow a strategy, a long term strategy that acknowledges taking on a higher degree of risk, or that acknowledges that you’re in some other way doing something different than what the rest of the market is going to do. And you’re going to have a downside to that. But you want to accept that because of the chance of a higher upside. Did that capture it? Right? Are those sort of the three?

Mike: 17:52

Yeah, there’s probably more also but I do like those categories. And I’m gonna start with the last one, because I’m most familiar with that, because of the value investing. So value investing is just taking these companies that it’s hard to describe, but value versus growth is one way of breaking down the total market growth companies are those ones that you you just know are going to be shooting straight to the moon, it’s the companies that the more subscribers, the more clients, they get to have a great service, they’re going to be attracting tons of clients to their product and service and really just taking off. So Amazon, Netflix, Google these names you like, oh, they keep doubling in subscribers all the time, and the company is just going straight up. Those are all growth companies, the value companies are more those ones you’re like, yeah, they don’t have a lot of opportunity for that great growth. It’s like Procter and Gamble. They spit out tons of products you use every day, but they can’t double their revenues in a couple of years, they just have a wealth of products that chug along or utility companies, that they definitely have lots of subscribers paying the monthly fees, but they can’t double their revenue. So those are called Value companies. Now there are different factors. Value versus growth. There’s other ones, the point is you can decide, hey, value companies, you look historically, they tend to do a little better. There’s reasons for that. And so you could take a long term view, invest a little bit more in the value. So now you’re not taking this total stock market, I decided to buy more of the value companies, which means less of the growth companies. And I believe that over 10,20, 30 year timeframes, that I will come out ahead. The reason you may come out ahead, is because you’re taking on more risk. Okay, that’s exactly what Matt said, and I totally agree, you’re taking on more risk, there’s a risk you might not do as well, there’s a risk that these companies go out flame out, or whatever it is, and because of that, you are hoping to get more return. Now historically, that has been the case, but it’s just a risk versus return. So you’re not really saying while I’m making a huge bet here but you are taking on more risk to hopefully get more return. So that’s one way of going about it. Now, I wouldn’t say that’s beating the market. So I’m not contradicting myself, because what you’re doing is making a little bit of an active bet, to take on more risk overall, which means volatility. So it means next year, my portfolio might be down more than Matt’s simple all world portfolio. But I’m hoping in 10, 30 or 40 years, that I might come out a little bit ahead because of that, taking on some extra risks. So that is one way that you can try to go about it.

Matt: 20:23

Let’s just flip this on its head for a second, though. Because I bet the majority of people out there are not sitting there and saying, No, it’s got to be different. Maybe they’re saying, hey, it’d be great. How about I just earn market return, which you’ve demonstrated so compellingly on the show over and over again, that if you just do the bread and butter basics, for a long time period, like you just said about Warren Buffett, you’re gonna do fine, you’re gonna hit your goals, you’re probably going to do great. What does that look like? Is it as simple as getting an index fund? Don’t mess around too much.

Mike: 20:59

100%. All right, great investor Bill Miller said it’s time, not timing, that makes all the difference. We talked about that with respect to Warren Buffett as well as just the time in market. So you buy an index fund, and you basically get a ton of benefits. Jack Bogle basically created this index fund, a founder of Vanguard created index funds in the 70’s. He was totally panned for it. By the way, they didn’t really perform that well for a while because we were in the 70’s. But you are now getting a massive benefit of index funds, why you can get market returns, okay, market returns are great, they’re not to be discounted, they’re fantastic. Just grab those market returns, all right, because you don’t want to flip a 50-50 coin, am I going to be above returns, or below returns, if I don’t take on just the index fund. Second, you’re getting super low cost really matters. So look for a low cost index fund. Third, you don’t have to spend any time thinking about it. All right, grab three or four different funds, your total world total US stock or international total bond fund, or the right mix for your risk and reward. And that’s that can be it Put, put your money in there, let it ride add to it. If you’re in the accumulation stage, you don’t have to think about it check in once a year. So you’re just getting huge benefits by using simple index funds.

Matt: 22:19

And to bring this full circle. Because again, what people come to you for a navy come to the show for isn’t just the financial but we could have made that as simple as possible. Right? The font yeah, buy an index fund. What they come for is, how do I blackbox style meet my goals? And so there’s still value in what you do and what some of your colleagues out there do not disparaging anybody. That’s the key point. But if you want the shorthand version, no, you can’t be the market index funds. All right, Mike. Thanks so much.

Mike: 22:51

Thanks, Matt. Thanks for joining us on financial planning for entrepreneurs. If you liked what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify, or wherever you get your podcasts. You can connect with me at LinkedIn for Morton financial I’d love to get your feedback. If you have a comment or question, please email me at financial planning . Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice or opinions expressed as our of the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.

Never miss a post!

Related Podcasts

You Can’t Beat the Market

Episode 86 •

27th September 2022