Beating the markets: is it possible?

Investors all want to "beat the markets", which means consistently outperforming over the long term. Who doesn't want to find the secret recipe and become a billionaire quickly through smart investing? But is it actually possible for the average person to beat the markets? We discuss it with Sébastien Mc Mahon, Chief Strategist and Senior Economist at iA Financial Group.

Ashleay: Welcome to the “In Your Interest!” podcast from iA Financial Group, where we discuss your need-to-know economic news and how it affects your finances. All this in under 10 minutes. Investors all want to beat the markets and who wouldn't want to find the secret recipe and get rich quick? But can it be beating the markets? Finding the secret that all those billionaires we hear about in the media have, and who knows, become one ourselves thanks to smart investments? My name is Ashleay. I'm here with my colleague, Sébastien Mc Mahon, our Chief Strategist and Senior Economist here at iA Financial Group. Hi, Sébastien.

Sébastien: Hello, Ashleay.

Ashleay: So, is it possible to beat the markets?

Sébastien: Well, you know, some big names have succeeded. Of course, everyone thinks about people like Warren Buffett, but we hear about them precisely because it is exceptional when it happens. So the question: is there a magic formula available only to a select club, or does one of the thousands of books on investing that you can find at the library contain the magic formula? Well, of course not.

Ashleay: Okay, but how do we beat the market?

Sébastien: Well, those who have an excellent track record and those who beat the market through time, well, they're good at selecting the right stocks or the right assets, at buying, at selling at the right time. They have access to assets and/or markets where ordinary people are typically not allowed. But, you know, the key to beating the markets really is outperforming consistently over the long run. So, luck is part of investing and you can't be lucky all the time.

Ashleay: And are there any proven optimal methods that could be considered the magic recipe?

Sébastien: Well, research shows that systematic investing is by far the best approach to investing. Simply put, start saving at a young age and put money aside every week, every paycheque, every month, every year during RRSP season. And in fact, our analysis shows that the frequency is not that important. The important thing is to be consistent. So, in layman's terms, investing for the long term should be the most boring exercise of your life. To become rich, or at least to accumulate wealth throughout one's life for the common person should be very, very boring.

Ashleay: I see. And taking risks doesn't mean speculating, right?

Sébastien: Of course not. Speculating is a great hobby, as is tracking the winning lottery numbers. But there's a reason why a lottery ticket usually costs $1, $2 or $5. It's prudent to limit speculative exercises to small amounts. That's exactly the role of your financial advisor to protect you as an investor from chasing the flavours of the month. Like, for example, during the 2020 and 2021 pandemic, the abundance of liquidity from low interest rates, from transfers from the government to support households, made several speculative investment themes attractive – I'm sure from your friends, from your family, you've heard about cryptocurrencies, NFTs, tech stocks. So, all of these assets have posted some good returns during that period. It's always tempting to jump on the bandwagon, but what usually happens is that the average investor jumps on board rather late when the games have been made and gravity then is about to bring the exorbitant prices of these speculative assets back down to earth. More people lose money speculating than those that become rich from speculating. Beware of stories from a friend of a friend or a brother-in-law.

Ashleay: Right. We always compare ourselves to the stories we hear. And of course, people only talk about their good deeds. I don't know if you've noticed, but the data shows that the average investor is indeed very average.

Sébastien: Yeah, exactly. So, according to some data that we have from JP Morgan, one of the, well, the biggest private bank in the world, for the 20-period starting in 2002 all the way to 2021, US stocks returned an average of about 10% per year, so that's 10% for stocks. US bonds return about 4.5%. A 60/40 balanced portfolio meaning 60% stocks/40% bonds returned about 7.5%. But the average investor in JP Morgan's data had a return of only 3.6% over that same period. So, underperformed both equities, bonds, and more importantly a 60/40 portfolio. So, to put numbers into that, if the average investor invested $10,000 in 2002 and then looked at the value of his portfolio in 2021, the one who would have invested completely in equities would have $61,000 in his account. Someone who invested in a 60/40 portfolio would have around $42,000 in his account, but the average investor went from $10,000 in 2002 to $20,286, to be very precise, in 2021. So that's a gap of about $20,000 versus just simply investing in a simple 60/40 solution.

Ashleay: Right. And for our listeners, could you elaborate a bit more about JP Morgan and why we always use their data?

Sébastien: Yeah, of course, so we tend to use their data because as I mentioned, they're the biggest private bank in the world. They’re a US bank and their client base is just so large that when they publish data about how their investors or how their clients are doing, it gives you a good pulse of the whole financial market.

Ashleay: Do you have some conclusions and advice maybe for our listeners?

Sébastien: Yeah, of course. Investing should be simple, so let's get back to basics. The goal of investing is to grow your capital. Let the professionals try to, “beat the markets”, buy the right funds, funds that have a history of good performance, leave that to them and concentrate on the savings part. Simple strategies are accessible to everyone. All it takes is a good dose of discipline and a good dose of patience. So, these are the keys to investing for the long run. Spending time in the markets rather than trying to time the markets or to find the turning points, has a much greater impact on your long-term capital. So, staying invested when there is volatility. A very important point, in that it relates to a question I've had oftentimes recently – only buy assets that you understand and always know why you're buying them just like anything that you will buy in your life. It's your money after all. So, make sure that if you invest in something and it turns wrong, at least you knew what you invested in and you knew why you invested in that theme. And don't think that everyone is successful but you. There is no worse feeling in investment than thinking that everyone's invited to a party but us and everyone's having fun but us or everyone's getting rich and we're left behind. In fact, the average investor actually has a very poor track record.

Ashleay: Excellent advice, as always. Thank you very much, Sébastien. Love this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast available on all platforms, visit the economic news page on, or follow us on social media.


Sébastien Mc Mahon joined iA Financial Group’s economy team in January 2013. Throughout his career, Mr. Mc Mahon has held various positions in several prominent financial institutions, notably at Quebec’s Ministry of Finance and the Autorité des marchés financiers, Quebec’s financial market regulator.

Sébastien Mc Mahon also serves as Vice-President, Asset Allocation, and Portfolio Manager for our subsidiary, iA Investment Management Inc. (iAIM), with assets nearing $15 billion. Mr. Mc Mahon is also a member of the firm’s asset allocation committee.

Sébastien Mc Mahon

Chief Strategist and Senior Economist

This podcast should not be copied or reproduced. Opinions expressed in this podcast are based on actual market conditions and may change without prior warning. The aim is in no way to make investment recommendations. The forecasts given in this podcast do not guarantee returns and imply risks, uncertainty and assumptions. Although we are comfortable with these assumptions, there is no guarantee that they will be confirmed.

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2024-03-01 11:38 EST
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