It's less about being "smarter," it's really about identifying your advantage and understanding whether you can exploit it. This could be something as obvious as an information advantage (insider trading) to simply having more time/patience. If you can buy and hold for decades, you can wait out the bumps, the people who are forced to sell, and for more money to enter the market.

Depends. You can invest low risk (yielding say only 5% yearly profit). If a big company which is supposedly stable falls (such as Morgan Stanley) you may get lose a little but since you spread enough not so much.

You get income than the interest from your bank this way. While in EU you get guaranteed 100.000 EUR when a bank collapses, but if shit really hits the fan (crisis, many companies collapsing, EUR or USD losing a lot of value) you are toasted regardless.

Except I think the only way to make any serious money in the market is to bet against it when things are over/under valued, and of course.. be right.

What does that mean... don't try to buy individual stocks, just buy the index?