Unit 1 Lesson Three: Beating the Market

Lesson Three: Beating the Market

By Nicholas Murja

Write 1-10 on a piece of paper and then predict what you will flip each time.

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Next, flip your coin 10 times and track ​the times you were correct.

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Is there strategy to flipping a coin?

Open Ended

How many did you get correct?

Who won?

Poll

Why do you think the individual won?

• Random Chance

• Strategy

The Analogy

What if the person who predicted the most flips correct had a special method and strategy for guessing? What if it really wasn't a guess at all? Would you be curious about the method?

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This analogy was put forward by the single most successful investor, Warren Buffet in an article about super investors.

We are learning an investment strategy called "Value Investing." The goal of value investing is to buy every $1 for $.50. To find a $10 bill that someone is willing to sell for $5.

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Many believe that this isn't true. We are going to look at the thought process behind the hypothesis that says we can't buy stocks at a discount and the thought behind value investing. Then you can judge for yourself. ​

Is it possible for someone to "beat the marker?"

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https://www.investopedia.com/video/play/efficient-market-hypothesis/

​The Efficient Market Hypothesis

Open Ended

What does the efficient market hypothesis state?

​There are many types of investing strategies, but we will learn about Value Investing because that's what Warren Buffet uses.

https://www.investopedia.com/video/play/what-is-value-investing/

Value Investing

Open Ended

What is one of the principles value investors follow?

Multiple Choice

It's impossible to beat the market because everyone is working off the same information.

• The efficient market hypothsis

• Value Investing

Multiple Choice

Because people buy and sell stocks emotionally or with a herd mentality, it's possible to find stocks for cheaper that what they are worth which allows for stocks to be purchased at a lower price than the actual value.

• The efficient market hypothsis

• Value Investing

Multiple Choice

Scenario 1: Liz has been interested in investing in the stock market for a long time. She finally decides to invest $5000. She carefully researches a cheese company’s value, including their debt and their profits. She determines the company’s stock is underpriced compared to the value of the company so she invests.

• Value Investor

• Efficient Market Hypotheis

Multiple Choice

Scenario 2: Alex is not very concerned with the value of the companies when he makes his stock picks. He believes the markets will rise over time so he invests in a basket of many stocks or an ETF.

• Value Investor

• Efficient Market Hypotheis

Multiple Choice

Scenario 3: Jack carefully researched his investment options and invested a significant amount of money in a media company. The stock price of the company has been volatile for the past year and many shareholders sold their stock. However, Jack was patient and left his investment alone and is now enjoying seeing a steady rise in the value of his shares.

• Value Investor

• Efficient Market Hypotheis

https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors

Let's take a look at this article by Buffet to learn how superinvestor's "beat the market"