Compare Your Stocks to the Market to Gauge Success

If you compare stocks to the performance of the market, you are going to be able to ascertain valuable information about the potential of your investments. Making the proper comparison can tell you whether you should stick with the stocks that you have chosen or go with something else. Here are a few things to consider about comparing your stocks to the market.

Having a Point of Comparison

Many people look at their portfolios and see that they have appreciated in value. They think that because a few of their stocks have increase in value that they are doing well. While it is always good to make a profit, you really do not know if you are doing as well as you could unless you have something to compare the performance of the stocks to. Your stocks might be appreciating in value, but you do not know if they could be doing better. By having something to compare your stocks too, you will be able to tell if they are doing as well as other possible investments that you could have made.

Market vs Company

When stocks increase in value, there are several different factors involved. The stock could increase in value because of the superior performance of the company itself. They could also increase in value just because the market in general is doing well. During bull markets, many different stocks are going to increase. Therefore, your stock could be going up in value just because everything is going up in value. If you want to analyze the performance of your portfolio, you are going to have to compare it to the rest of the market. This will tell you if your stocks are going up in value because of the market or because of the underlying company performance. 

Financial Benchmark

In order to compare your stocks to the market, you need to determine what you are going to compare them to. The most common way to compare stocks is to look at a financial benchmark. A financial benchmark is also referred to as a financial index. This is basically a compilation of the value of a certain amount of securities. For example, the S&P 500 is a popular benchmark that is composed of 500 of the top companies in the United States stock market. By looking at the movement of the biggest 500 companies, you should be able to get a feel for how the market is moving overall. Generally, if the S&P 500 is up, the entire market is up as well.


You need to find a financial benchmark that you are comfortable working with. Once you have something to compare your stocks against, you need to look at the performance of the benchmark and your stock. If your stock has increased at a higher percentage than the rest of the market, then you are doing well. If the market has increased at a faster pace than your stocks, then you may want to reevaluate.

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