Investing à la Homer Simpson

If your investing strategy is to actively try to 'beat the market', you should always keep in mind that this is a zero sum game. For any investor who beats the market, there is inevitably another investor who underperforms the market, since the 'market' return is the average of the returns of all investors. The gain of one is the loss of the other. Anyone who thinks that a stock is mispriced should therefore consider the following question: why am I smarter than all other investors out there on the market, whose combined beliefs determine the stock price? What do I know or what do I understand that all these people out there do not know or do not understand? (*) As the behavioral finance researcher Meir Statman put it: 'If you buy a stock thinking the price is going to go up, you have to ask yourself who is the idiot who is selling it. Because, in every trade there is an idiot and, if you don’t know who it is, it is you. The opponent might be more skilled than you, have information you don’t have, be tipped off by an insider and, so, when I feel like trading I ask myself, who is the idiot on the other side? What is my relative advantage?' Make sure you're not the idiot.

(*) This might have something to do with it.