It is virtually impossible to out perform the stock market all of the time, over time. The only way to out perform is to act differently from the rest of the market and to allocate more to higher risk out of favour areas.

To do this you have to risk under performing the market, an action contrary to investor psychology which views under performance as a consequence of “getting it wrong”. The natural inclination is to buy investments which are performing well and sell those performing poorly.

Unfortunately for those who try to out perform all the time, the market is efficient. The demand for and supply of shares in the market is at equilibrium and represents all known information and decisions by all market participants.

While you may make a better decision than the average investor on some stocks, you may make a worse decision than the average on others. What the market does not do is tell you whether a falling stock should be falling or whether a rising stock should be rising, or whether a rising stock has risen too far and vice versa.

Efficiency means that you cannot consistently engineer significant price differentials by acting on readily available information .

The index is the weighted average of the sum of all investment decisions. Its performance is greater than the average because of commissions, spreads and timing costs.

The only way to beat the index if you are a conventional investor is to be one of the first to buy and one of the first to sell. This is market timing. The other way is to think long term and act contrary to the views and preferences of the market.  In other words, investment discipline.

For further information please performance risks in the section the basics of investment.