Posted by I have always wanted to invest on my own.
Research companies, Read Financial statements, learn about their operations, learn about various industries and buy stocks on my own.
But seeing that all the mutual funds deliver 15-18% return in the long term, this question often pops up in my mind.
Why bother learning to invest on my own when I can outsource it to mutual fund managers paying just 1-2% fees??
Here are the reasons:
Why You Don’t NEED a Financial Advisor | Phil Town
Successful Investing Means Leaving Mutual Funds Behind | Phil Town
Lies Your Financial Advisors Tells You | Phil Town
Peter Lynch Advocacy of investing on your own rather than giving you money to a fund manager in his book “Beating The Street” Preface to the paperback edition and chapter no. 1 entitled “The Miracles of St. Agnes”
In this chapter Peter tells how a group of seventh grade students beat the Wall Street geniuses in stock picking. He tells similar story of 10,000 local investment clubs made of ordinary men and women who have beaten the wall street fairly well.
Fund Managers can’t go in cash. Means even if any stock or the whole market is overvalued and they have to buy those overvalued stock pushing the price even higher.
They cannot wait in cash for good stocks to go on sale.
Similarly, in a bear market if their clients redeem funds they will have no choice but to sell shares even if it is a fair priced share.
They are at the whims of their investors. If the retail investor redeems in a bear market they will have to sell pushing the price even lower. If the retail investor throws in money in a bull market they will have no choice but to buy shares pushing the prices even higher. They cannot sit in Cash.
They have to compete and defeat their peers and publish their quarterly reports which adds pressure to perform.
Warren Buffet said in his 1999 interview with Bussiness Week following:
“If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”
When we research companies, we know a lot about how businesses work, how particular sectors and industries work, how promoters innovate to increase revenue and decrease costs, launch new products, keep the competition in check, how news affect stock prices etc etc
Reading about companies is a very enriching experience in itself. Anyone can benefit in some way just by reading about companies even if they don’t make a penny.
Mutual funds just shadow the index and they don’t beat the market in the long term
This is an ever updating blog post. I will keep updating it with more and more reasons to learn to invest on your own.