Gene Chan's  Instablog

So you want to beat the market. Despite the fact that you can effortlessly earn market return by investing in index funds, despite the constant discouragement from the financial academia telling you that it's impossible to beat the market, and despite research showing that most professionals really do fail to beat the market, you think you can do it.

The good news is it is possible. Warren Buffett once said, "Observing correctly that the market was frequently efficient, they went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day." And I tend to agree that, if one is willing to bring intensity to the game, it is possible to earn excess return, or alpha.

But in the end the quest for alpha is a zero-sum game. By definition, the average investor cannot earn more than the average. Each dollar you make in excess to the market is taken from other investors who are earning below average return, and how much you make is depended on the edge you have over the other investors.