How can investment skill be defined?

Investment skill can be defined as the ability to outperform a relevant benchmark consistently over time. This definition reflects a comprehensive understanding of market dynamics and investment strategies, as it requires not just one-time success but sustained performance relative to a set standard.

Consistently beating a benchmark implies that an investor has a skill set that encompasses not only the selection of assets that appreciate in value but also the capacity to manage risk and allocate resources effectively. It indicates a robust investment process that includes thorough research, analysis, and decision-making under various market conditions.

In contrast, other options focus on specific actions or attributes—such as following trends, timing trades, or managing costs—but do not capture the broader concept of investment skill as a sustained ability to generate alpha or excess returns over a defined timeframe relative to a benchmark. Therefore, consistently outperforming a benchmark is the most holistic measure of true investment skill.