Explain why an investor should not expect to out perform the market on a consistant basis.?

Because the market is efficient and prices in all available information. The only way to outperform the market is with superior information, which an investor is not likely to have. Moreover, in many instances that an investor does have superior information, the law restricts the ability of the investor to realize the value of that information (i.e. insider trading prohibition).

Well, because many investors invest in mutual funds, and most mutual funds underperform the market over the long run. Even index funds slightly underperform the market because of the expenses (low as they are). If, OTOH, you invest in individual stocks, you have to have the time, know-how and willingness to do all the research and work it will take to bring you success, and most people don't.

Depends on the risk level. Low to risk free investments will not on average out preform the market.

The issue is not why AN investor should not expect to outperform the market, but why the median investor should not expect to outperform the market. There is a very important difference. I have an extensive track record of outperforming the market on a consistant basis with materially less risk, as does Warren Buffett and quite a few others. However, the median investor is not me and the median investor's talents and skills are not mine and the median investor has a different set of issues from me.

The efficient market hypothesis in all its forms is probably very faulty and in most respects is asking the wrong questions.

Regardless of whether prices are efficient or not, imagine for a moment that there existed three investors in the world. One made 10%, one made 0% and one made -10% from trading with one another. On average, return was equal to 0% and 2/3rds of investors were average or worse. Further, imagine that there is no specific reason to believe the investor that made 10% did anything special or unique the others did not do and in future years each of the three investors were ranked 1st, 2nd and third about an equal number of times.

Now imagine there are a million investors. 500,000 investors would be above median in the first year, 250,000 investors would be above median in two years, 125,000 in three years, 62,500 in year 4, 31,250 in year five, 15,625 in year six, and so on. In twenty years, you would expect there to be one investor who was consistently above median.

Now that is the basics of the arbitrage theory of pricing. However, I am an academic and there appears to be sort of a caveat to this. First, return distributions are not normally distributed so the median investor gets less than the average return in most environments, so the median investor will usually do worse than average. Second, there appear to be multiple equilibrium conditions and they lend themselves to a type of future arbitrage which permits people like Warren Buffett to outperform the market on a consistant basis, or anyone else for that matter. There are a number of other mechanisms to out perform the market but it is likely that only institutions can accomplish those mechanisms. A simple example is the market maker. If a market maker's only gain were the simple return on holding their inventory, they wouldn't act as a market maker. Because they can outperform the market by being a market maker, they accept that role. They are granted privledged status in the market, in exchange they place their liquidity on the line to facillitate market transactions.

At the risk of offending academics and "efficient market" believers, it is an absolute fact that an individual investor can outperform the market on a consistent basis. It takes some years of experience, study, perseverance, self-control (psychology is a great key, here). The "average" individual investor? Maybe not. But it you try hard, you can do it.

So, what if you had a way to find individual stocks that outperformed the market, even for a short time? (Please don't tell me about "buy and hold"). Go to Yahoo Finance and come up with the last 6 months of DJIA. Use a log scale for price and candlesticks for format. Now get charts for CF, PCP, ICE. Now get out your calculator and pick some prices and dates off the three curves and compute the APRs.

So, the answer to the question directly is that the premise is false.

A very good book to read on this topic is "Come into My Trading Room", by Elder. Good, easy read. Good foundation material, good starting point.