Go Your Own Way in This Stock Market

BOSTON (TheStreet) -- Individual investors are capable of beating stock-market indices, but there's no getting around conducting research.

Few mutual funds, index funds or exchange traded funds shielded investors from last year's rout, which wiped more than $1 trillion off 401(k)s alone. Americans need to accept personal responsibility for their financial goals and educate themselves about the risks and rewards of investment strategies.

To help investors get comfortable with generating investment ideas, TheStreet.com writes a daily small-cap article, "Under the Radar," which identifies lesser-known stocks. Goldman Sachs(GS Quote) and Morgan Stanley(MS Quote) have neither the time nor the capacity to cover small companies. As a result, many are undervalued. That creates an opportunity for savvy investors.

If you held a large-cap index like the Dow Jones Industrial Average over the past 10 years, you would've lost 7% of your investment. But if you owned the Russell 2000, a small-cap barometer, you would've posted a 38% gain. Why do small-caps tend to outperform their larger peers?

Because small caps are growth-stage businesses. As a result, they offer significant return potential -- but also immense risk. If you pick a shaky company, it might go under. But if you discover the next Google(GOOG Quote), you can get rich.

It might seem impossible to decipher which companies will flourish in our uncertain economy. But if you stick to businesses that you understand and believe in, it's much easier to find winners than you think. Let me give you an example of how subjective stock-picking can help you beat the market.