According to some research theory “Great investments and great ideas come to people before they reach thirty.”
Peter Lynch author of “One Up wall street” and the great investor said it is not true at all. He was managing a mutual (fidelity Magellan) at 45. He believed that investing has nothing to do with youth. In fact middle-aged investors have seen many ups and downs of market and they have much more experience than the youngsters.
Usually investors blindly follow some experts or big institutions and buy stocks according to their portfolio. Actually people wait for others to make the first move. People don’t want to do research and they just want to follow what other experts or researchers suggesting as per their knowledge. This is what majority of people do in stock market. Over the longer period they don’t get succeed and say” investing in stock market is gambling”, “It’s not my cup of tea”.
Now let’s have a look what kind of liberties that you have as an individual investor, which the fund manager don’t have.
The fund managers most likely is looking for reasons not to buy exciting stocks (unknown stocks), so that he can offer the proper excuses if those exciting stocks not perform well. “There was no track record”, “It was non growth industry”, “unproven management”.
If there is chance of big gain in unknown company and little loss of known company then fund managers, pension fund managers or corporate portfolio manager usually go for second one. You might ask why so? If there are chances of gain in first move then why they go for loss?
There is an unwritten rule on Wall Street “You will never lose your job losing your client’s money in HDFC”. If HDFC stock prices go down and you bought it, the clients and bosses will ask: “what’s wrong with that damn HDFC lately?” But if some unknown company in which you have invested goes badly, they will ask “what’s wrong with you?”. Now you might be understood why fund managers prefer to invest in known company only.
The worst of stock selection takes place in the bank pension fund department and in the insurance companies. Where stocks are bought and sold from pre-approved lists. They prefer this strategy to avoid losses from diversification.
There is one method known as “inspected by 4“method is how stocks are selected from lists. The decision makers hardly know what they are approving. They don’t travel around visiting companies or researching new products. They just take what they are given and pass along. That is why so many pension fund managers fail to beat the market averages.
Fund manager’s job is quite challenging. Their performance is monitored quarterly and yearly as well. Their clients and bosses demand immediate results. Fund managers in general spend a most of their working hours explaining what they did and why they did. They have to explain reason of their buying to bosses and clients.
There is an unwritten rule that “Bigger the client, the more talking the portfolio manager has to do to please him”.
Whenever fund managers do decide to buy something new companies which looks good to them. They may be restricted by various written rules and regulations. Some bank trust departments simply won’t allow the buying of stock in any companies with unions. Others won’t invest in non-growth industries or in specific industry groups. The various restrictions are well-intentioned and they protect against a fund’s putting all its legs in one basket. The bigger funds are forced to limit themselves to the top 90 to 100 companies. Some funds are further restricted within a market capitalization rule. They don’t own a stock in any company below say 100-million.
Advantages as an individual investor over fund managers
You don’t have to invest like an institution. If you invest like an institution, you would set a benchmark for you. It’s not like that institutions always outperform. Also you don’t have to perform like a beginner or non-professional.
Unlike fund managers, when you invest there is no crowd around to judge your quarterly or semiannual results. You don’t have to explain anyone why you did that and what you did. There are no rules or regulations that restrict you to make investment decision in particular direction. There is no limitation of buying some fixed number of stocks say 50 or 100 stocks.
If you don’t find a company having good fundamentals then wait for better opportunity. Equity fund managers don’t have that luxury, either. It’s not necessary every time you have to look for opportunity somewhere else, you can find great opportunities in the neighbor-hood or at workplace. It happens you get that opportunity months or even years before the news has reached the analysts and the fund managers they advise.
Source:One Up wall street