Friday, June 16, 2006

The Power Of The Individual Investor

As an individual investor you have many advantages over asset management professionals and mutual fund management.

An individual investor that eschews packaged investments and pursues research on personal speculations has a huge advantage.

  • Individual investors don't have to invest - cash is a valid asset class for you
  • time is on your side
  • you are not limited in style
  • you are not limited by geography
  • you are not judged on a monthly or quarterly basis
There are other individual investor advantages also, some of which I've covered in previous investment articles.

Professionals get their MBA and dive right into a specialized financial niche. As a private investor you will not be better at analyzing bonds than a bonds pro, or better at trading wheat than a wheat specialist. You can be good at guessing what's next, and learning how to profit in the almost now best sector to invest. If you think metals will take off as China's growth accelerates, you can research iron, gold, and uranium. The bond and wheat trader will still be great at their niche, but that's it. When in a decade or two you decide everyone hates stocks and bonds, you can switch back and by some stocks. If the professional bond trader is still in business, he'll still be great at bonds.
Cash is an asset class. In times of inflation "cash is trash" is a popular phrase - but there are many ways to hold cash - and many currencies to hold it in. A public fund manager normally is expected to be close to fully invested even in dangerous times - as an individual investor you can pick your own exposure and times.

Instead of being committed to investing, you can taste of many styles and markets, small sums that teach you the risks. Each book you read amplifies your knowledge over time - increasing your effectiveness. We are seeing a sea change in investment today by asset class - you can rise and fall with the tide while professional investment managers may be swept out to sea due to inflexibility.

There are many more benefits - start small and learn them for yourself.

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