This question comes to the mind of almost every person starting his/her journey in the world of Investing. And why not, there is some serious value in the answer.
If you can't possibly beat a professional Fund Manager no matter how much time and effort you put in, there is no need to learn Investing - unless of course if you want to become one.
Why would you spend tens of hours every week reading different Investing techniques, researching stocks, evaluating risks and formulating strategies if you can just go and buy your share in an Investment Fund with a click of a button? After all it is so easy and convenient to invest in a Fund and not pay even slight attention in taking care of your investment.
It's true that this kind of investment approach suits a lot of people who do not have good understanding of how the market works or do not have time or desire to look after their investments.
A Fund Manager managing a big fund surely has some upper hand which provides benefit and leverage which otherwise is not possible:
1. Leveraging Infrastructure and Talent
If someone is managing billions of dollars of money, that kind of leverage can give huge absolute gains even with some small basis point increase in performance of the fund. So these professionals tend to invest some good money in infrastructure and Analytics talent (as if they have less). These kind of investments are very difficult to make (if at all possible) by an individual investor who seek to invest some money from his monthly income.
2. Fund Managers have ability to look out for small arbitrage opportunities across a wide portion of the market and can gain huge in absolute amounts from small margins given the leverage of money they have. It is not feasible for small investors to have systems in place to constantly look out for these diverse and short existing arbitrage opportunities and lack of huge cash for investment makes them very less appealing (even if they manage to find one).
But there are some restrictions that every Fund Manager faces. These restrictions potentially can give you an upper hand in the game.
Restrictions a Fund Manager could be facing limiting the potential of the fund:
1. With multi millions (or billions) of dollars in hand, these investors tend to own stocks of big companies - the ones which they can buy in bulk to fill up their portfolio. Hence, most of them tend to concentrate on same over-priced big companies in their portfolios.
2. Investors of these funds (general public) become over-optimistic when the market rises and start putting more money into the funds. These funds then invest this new money into the market when it is already over-priced and hence driving the prices even higher. Hence they are forced to buy when the market is high.
3. When the market falls, investors of the fund (general public) panic and start withdrawing their investments. The Fund Manager may be forced to sell his holdings to have enough liquidity to pay to the investors. Hence, they may be forced to sell when the prices are low.
4. Many Portfolio or Fund Managers make money when they beat the market. So they continuously compare their portfolios with respect to market indices (like S&P 500) and adjust the risks accordingly.
If a new company is added to the index being compared, most of the funds have a compulsion to buy it. This is because if they don't and the company performs well - they lose money, reputation and look like idiots. If they buy and the company performs bad, nobody asks them a question because the fund is being compared to the index containing the same stock.
Hence they lose their flexibility to select their favorite stocks.
5. The Fund Managers (and hence the fund they are managing) are expected to be specialized on a particular market or type of stock or companies (like growth stocks). So if one of their holdings becomes too big (or too small or too volatile etc.) then they have to sell it, even if the manager likes the stock.
Most of the above limitations are not faced by individual investors as they own the money.
So is it possible to beat a Fund Manager? - Yes. It is very much possible to beat a Fund Manager since you can experience the flexibility to make intelligent decisions that cannot be taken by a Fund Manager.
It also depends a lot on what your definition of beating really is..
For more, I would recommend reading work of Jason Zweig.