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Efficient Markets: The Best Way To Invest

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Many investors uses many different methods to pick stocks, for instance you can look at the fundamentals of a company or you can look at technical patterns. However the question you want to ask yourself is if you were able to outperform the market consistently. Said differently, take the return of your portfolio and compare it to the return on the S&P 500, did you return a greater amount that the S&P every year? Chances are you did not. Don’t feel bad, according to efficient markets, this is impossible.  

If you invest in State Street Global Advisors’ SPDR Dow Jones Industrial Average ETF (DIA), your portfolio value will move in sync with the DOW.  But the problem is that you would have to pay ETF fees. According to David McEwen of Seeking Alpha, there is an alternative to this, you can invest you money in Procter and Gamble (NYSE:PG). According to his analysis, PG is closely correlated with the market. As a matter of fact, PG outperforms the market in most case. Take a look:

Other investors have come up with different alternatives to ETFs such as using statistical techniques. For instance, in statistics, if you randomly select from a large population, the mean and variance of the sample population should be the same as the entire population. This can be applied to the S&P 500 as well. 

Do you agree with this approach? Or have you consistently outperformed the market?