Sure it will take up some of your free time but it will be awarding.

HAMBURG - Most private investors, managing their own money, do not realise they have an immense advantage over a fund manager due to factors they may not even be aware of.

Sure it will take up some of your free time but it will probably be one of the most awarding activities you can invest your time in.

We have all worked hard for the money we have saved and it would only be prudent to invest in the best way possible.

With public pension systems crumbling around the world because of aging populations, making the most of your savings has gotten much more important.

Below are the advantages I have come up with. If you have any to add send me a short note or post a comment.

1. You can wait
As a private investor you can wait for attractive investment opportunities to present themselves. If you cannot find anything attractive you can stay in cash.

Fund managers do not have this luxury. They have to invest in whatever their investment area is irrespective of valuation.

Holding cash in the fund management world is known as career risk as the fund manager runs the risk of falling behind his peers or his benchmark. The larger the cash position the higher the career risk.

The best example of career risk I have read is value fund managers losing their jobs because they refused to buy internet shares during the internet bubble.

2. You can invest anywhere and everywhere
As a private investor you can invest in any type of asset in any country that offers an attractive risk return trade-off, be it corporate bonds, equities, options, real estate etc.

Fund managers have to stay within the fund's investment area. Additionally complying with regulations, even further limits their investment choices.

You can argue that you can change to a fund in another investment area but that is also actively managing your money.

3. You can invest in any size
This is similar to the investing anywhere and everywhere as you have the freedom of investing in small or large companies whatever is most attractively priced.

I was recently astounded when I heard of a value fund manager that had to invest in companies that have a high weighting in a particular share index because he had institutional investors (read large investors) that would withdraw their funds should his performance deviate too much from the market.

This is ludicrous, why invest with a value manager if you really want market index performance? You want a value manager to do what he does best, search for undervalued companies.

4. You have no benchmark
As a private investor I only have one goal in mind, to grow my investment portfolio each year irrespective of what the market does.

I do not consider it a good year if I have lost 25% while the market has lost 40%.

I am sure your goal is the same.

Fund managers only have one goal, beating his benchmark irrespective of absolute return. I cannot remember how many times I have heard a fund manager say that he has to remain fully invested in his investment area as that is what his investors expect of him.

Just think of what happened to investors in technology funds as the internet bubble deflated.

5. You can focus and ignore
Studying, understanding and applying what has worked in investing is all you need to do to be wildly successful as a private investor.

You can only focus on a few things and ignore the market noise, you only have to spend relatively little time to be successful.

Fund managers have to have an opinion on a lot of different investment areas because they have to appear competent in company and client meetings. It is tough for them to have to say I do not know.

I do not watch financial television, its complete rubbish and a waste of time. Mainly yo-yo news ie, what went up and down.

I have my investment criteria, I look for companies that fall within it and I study only those. The rest don't interest me and that saves a lot of time.

6. No conflict of interest
This is a big one. You only have your best interests at heart. In other words all your decisions are in your best interest.

Fund managers have to think of keeping their jobs, increasing their assets under management and keeping clients happy.

All this means is that their investment performance is not the most important thing on their minds.

Fund managers in companies that offer investment banking services may be pressurised to buy securities of investment banking clients irrespective of investment attractiveness.

7. You can have a long view
According to a study by the New York Stock Exchange the average holding period of shares held by investors have declined from five to six years in the 1950s to 11 months.

That means that the average investor has an investment horizon shorter than one financial year.

It is unlikely that a company with problems, as undervalued investment inevitably have, can sort them out in such a short period of time.

As a private investor you can follow the company over many years and realise the gains when the company gets revalued by the market.

This may be the largest competitive advantage you have. The ability to look at a company solely on valuation and keep it as long as it is undervalued.

8. No peer pressure
Accept if you discuss your investment with friends or family you will have no peer pressure to buy or sell any investments.

I have gotten to the point that I am reluctant to discuss my investments because the response I get is either, "never heard of it" or "what, you must be mad, don't you read the newspaper?"

Fund managers have a different problem. The funds they manage get compared to benchmark indices and other funds, including the individual fund holdings.

If you manage your own money you have none of these problems.

9. You decide
You make the final decision after you have done the analysis. You may be wrong but at least you make the calls either way.

A lot of funds are managed where committees decide what is bought and sold. Apart from the problems of group-think investment committees are staffed with people throughout the organisation with different investment approaches, not all of which has shown good historical results.

Furthermore it may be difficult to tell your boss that his investment idea stinks if you have your bonus evaluation later that day.

This leads to suboptimal and sometimes completely dysfunctional decision making.

10. You can concentrate
If you find a really compelling idea you can choose to invest as large a part of your capital as you feel comfortable with.

With 80% of non-market risk diversified away with as few as 15 positions you can determine what your optimal number of investments are.

Mine is 30 as I feel comfortable with the weighting of each position in my portfolio and I can easily keep track of the investments.

When I see funds with 100 or more investments my first thoughts are that they must not have much conviction in any of their ideas.

Also with so many positions you may as well buy the market itself through an inexpensive exchange traded fund.

11. You control the costs
Controlling costs and fees, or the friction of investing, is a very important part f realising superior long-term results.

Using a discount broker I can buy and sell most shares for around 1% brokerage. If I hold a position for three years that equates to 0.33% per year plus a 0.25% custody fee.

That is a lot lower than funds that charge 1% to 1.5% per year on top of a 5% initial fee and other expenses.

Calculated over a period of 20 to 30 years keeping costs low makes a huge difference.

12. Down years are more bearable
This goes along with the point on making your own decisions.

Should you have a bad year at least you know you made the decisions, can learn from your mistakes and make adjustments to your investment strategy.

13. You can be fully invested
Should you find a large number of attractive investments you can be fully invested and remain so even if the markets declined and you are still convinced of the investment case of each investment.

With a fund manager this is unfortunately not the case. When markets fall they are bound to get redemptions. In order to meet the redemptions they must either have cash available or sell investments.

But when markets are falling liquidity drops as well. That means that because investments have to be sold liquid investments are sold first. This selling pressure puts pressure on share prices leading the markets to fall further thus triggering more redemptions. You get the picture.

Some fund managers plan for such eventualities by keeping a certain amount of liquid investments or by keeping at least a small amount of cash on hand.

This as mentioned leads to suboptimal investments not necessarily the manager's best ideas.

Luckily as a private investor you do not have this problem.

I always keep a cash reserve of one years living expenses aside to ensure that I do not have any pressure to sell investments should the market decline unexpectedly.

Also a large cash reserve gives me the peace of mind and opportunity to focus on investing for the long term.

There are of course a few funds where the drawbacks mentioned below do not apply but they are in the minority. The large bulk of fund management companies are focused on growing the amount of money they manage, where maximising the returns to investors come a distant last.

*Tim du Toit is the editor and founder of Eurosharelab. He has more than 20 year of institutional and personal investing experience in emerging and developed markets. Tim is based in Hamburg, Germany. More of his articles can be found at www.eurosharelab.com

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Huh? It will be awarding? Nice headline. Who will be awarding you? I prefer it to get the rewards. Awards are what suckass bankers aspire to... by Joe Soap on February 08 2010, 02:21 Find this comment inappropriate? Report it

owner managed portfolio I agree with most of your points Tim. I took back managing of my portfolio from a large "private client" specialist group about 18 years ago and have not been sorry. Yes it takes a bit of effort but I have been quite successful and I now have . .more a pretty good picture of investment theory and practice. As I steadily approach retirement I am in a much better position to make decisions concerning financial matters relating to retirement when all income will be from investments/annuities. . .less by jerry on February 08 2010, 03:09 Find this comment inappropriate? Report it

@ Joe Soap well said I just can't take the rest of the article seriously by roto rooter on February 08 2010, 03:12 Find this comment inappropriate? Report it

Private Investor-how much to qualify A private investor is a private investor, Mickey Mouse investors stay away by Reality Check on February 08 2010, 03:20 Find this comment inappropriate? Report it

Nice one Tim Great article. There is merit in all your points. What I like about investing personally, is that I deversify my asset manager risk. A 3rd of my investments are managed by 2 different professional fund managers, and the rest I do myself. Save a wack . .more on fees and performance bonusses! . .less by Johnny V on February 08 2010, 03:22 Find this comment inappropriate? Report it

A JERRY IF I HAVE AN ANNUITY WITH OLD MUTUAL, CAN I PHONE THEM UP AND TELL THEM TO FOR EG. INVEST ALL MY FUNDS IN ANGLO GOLD FOR ME? by JJ on February 08 2010, 03:22 Find this comment inappropriate? Report it

Sterling article-so true Most money managers underperform-if you underperform at least you have not paid for it by SAM on February 08 2010, 03:32 Find this comment inappropriate? Report it

@JJ No Old Mutual cannot invest your retirement annuity in Anglo Gold, but you can ask your adviser to select a fund where there might be exposure to these funds, if your RA allows for that. by realitycheck on February 08 2010, 03:33 Find this comment inappropriate? Report it

Good points Tim good article, I must say that you are in a different category of 90% of investors, thus have the flexibility and "purchasing power" to implement your own strategies. I don't often encounter clients with "one years living expenses". Thus . .more your points are not applicable to all investors, and unfortunatley the average Joe needs to pay stupid fees for a fund manager who chases Beta. @JJ, if its large enough, move it to a platform with a "brokerage" component (sec 14 transfer), and make sure the platform applies the Reg 28 across the platfrom, rather than the individual RA's. from there you can invest in whatever you like - as long as the platform does not require the individual RA's to be reg 28 complian. . .less by CTIFA on February 08 2010, 03:46 Find this comment inappropriate? Report it

@JJ Get your money out of Old Mutual as quickly as possible. Our firm has our provident fund with these twits. Even with the market correction and subsequent uptick in the markets, guess what return these rocket scientists managed??? . .more 2.7%!!!!! . .less by Luke on February 08 2010, 04:34 Find this comment inappropriate? Report it

Pros and cons: Professional fund manager usually have more experience, but they have such large amounts to invest, they can't easily move in and out of stocks.. by WT on February 08 2010, 04:49 Find this comment inappropriate? Report it

Great Points but what about TAXES? The only advantage the Investment Retailers have is their ability to get away without having to pay CGT on the investments in say a SA Unit trust. Where Joe Soap will have to. So if you trade 33% of your portfolio, you probably lose your cost . .more advantage. So be wise and warned. . .less by Simple on February 08 2010, 05:11 Find this comment inappropriate? Report it

Codswallop While I must agree that Insurance funds are a rip off as are a number of these collective investment schemes I believe investors are better off with decent managers than on their own. Simply put, how can an individual ,not in financial markets, . .more compete with investment teams with years of experience. One can be selective about one's timing but you are guaranteed to have a higher probability of getting it wrong. The market is littered with self managed corpses who have no concept of asset/liability profiles, stock selection, asset allocation etc......this is an immature, dangerous slant to be selling to investors..... . .less by vann on February 08 2010, 05:25 Find this comment inappropriate? Report it

Private way to go !!!! Simple..work your butt of only to give loot to some imbicile to invest who gets it wrong most of the time. EMPOWER yourself today and invest on your own terms. Took mine away from reputable so - called money manager years ago and have done quite . .more nicely thank you. It is so exciting and there is so much useful data round. !! . .less by Big Reef on February 08 2010, 06:16 Find this comment inappropriate? Report it

no expertise Apart from one or two exceptions this is an industry devoid of real expertise. When markets are rising they follow the trend and when markets are falling they also follow the trend. The insurers are particularly bad as pointed out by Luke. So much . .more better to look after yourself . .less by do it your selfer on February 08 2010, 06:19 Find this comment inappropriate? Report it

2 4324 by 42 on February 08 2010, 06:49 Find this comment inappropriate? Report it

do not agree I cannot agree with this article. Having completed CFA about 6 years ago I still consider myself a newbie to investing. I think the biggest advantage to a private investor not having a benchmark is that he will not realise how badly he is . .more underperforming the market, and the managers you are all so wary of. I would wager that there is not a single reader that can buy invest in shares and cash and beat the alsi over 5 year plus periods. Thats why those guys where the smart suits... Sorry but it is true. If only picking stocks yourself was so easy as trading platform providers would have you believe. Now go draw some charts... . .less by Critic on February 08 2010, 07:02 Find this comment inappropriate? Report it

weak arguments here - not thought through clearly enough The biggest problem with most investors is their inability to control their emotions, esp fear and greed. More often than not it is decision making rooted in these emotions that result in poor returns to the investor. Whether you manage yourself or . .more via a professional is a moot point, esp if you are buying when everyone is buying and selling when the market is down. . .less by whips excite me on February 08 2010, 07:18 Find this comment inappropriate? Report it

nice pic Richard E Grant? by Barry Ronge on February 08 2010, 07:22 Find this comment inappropriate? Report it

@JJ If I had money invested in Old Mutual, I'd take as much as I could and run. (And keep running...) by Joe Soap on February 08 2010, 07:28 Find this comment inappropriate? Report it

I am going to ask Zuma for investement advice. He is wise careful and responsible about all things I suggest he forms a fund or becomes an advisor as people will flock to him for advice on how to invest and live their lives and spend their money. He is rational and deep thinking about all things, everything. A true repsonsible caring citizen who . .more makes well thought out and correct decisions. . .less by Zuma for President for Life on February 08 2010, 08:11 Find this comment inappropriate? Report it

Barry Ronge Barry, is that really you....? by Financial Virgin on February 08 2010, 08:19 Find this comment inappropriate? Report it

Profile Common sense is not as common as some assume. For some people paying to have their money managed on their behalf makes sense especially if they are prone to rash, impulsive herd type or balls to the wall behaviour. Probably the optimum . .more for most is pay to have the bulk of investments managed on your behalf and have a portion that you manage to see how you perform over 5-years and then increase the amount you manage incrementally if you do better than your manager (after fees, admin, etc). Different strokes for different folks. . .less by Tuscanite on February 08 2010, 08:42 Find this comment inappropriate? Report it

jack of all trades master of none most private investors biggest enemy is their own emotions which causes switches between asset classes at tghe wrong time resulting in capital losses.Look at the statistics , most investors buy when the market is high and sell when the market is . .more low.Good luck all on managing your own money, maybe they are the type that goes to the chemist for panado's when they have had an heart attack. . .less by jack of all trades master of none on February 08 2010, 09:06 Find this comment inappropriate? Report it

@Critic Don't feel too bad about your inabilities as it is general knowledge that CFA's are awarded for good attendance these days. In the earlier years a CFA meant something, but unfortunately Joe Soap could in all probability do a better job managing . .more his/her own portfolio than leaving it up to someone with a CFA! . .less by Zorba on February 08 2010, 10:22 Find this comment inappropriate? Report it

Financial Virgin Are you really a financial virgin or just a normal 40 year old virgin? by Barry Ronge on February 08 2010, 12:09 Find this comment inappropriate? Report it

Managing own Investments Costs erode investment returns over time - thus reduce costs and reap the rewards, i.e. manage your own investments as nobody looks after your own money better than yourself. Apportion your portfolio to Cash and Equity - depending on the . .more market. When market high, hold more cash (regular monthly investment) so as to buy equities when market low. Hold all equities unless the reason you bought them changes - even for 20 years or more, i.e. once bought never sell unless situation changes. As long as income from investment is maintained, who cares about capital value of holding? It is immaterial - other than an opportunity to buy more! Agree with bulk of article - will not sell quality equity if overpriced, rather wait for opportunity to buy more when market turns. . .less by Hammies on February 08 2010, 12:44 Find this comment inappropriate? Report it

Fund Managers AF lost me /- R70 000 of my pension in three consecutive Quarters, and the worst part of it is that they did not convey any communication in my direction as to how they managed to do this! I think a lot of investing houses hide behind the . .more claim that participants have the choice of risk appetite. Hell - everybody I know need to make as much as possible from their C***** Pension Investment in order to, one day, be at least just 40% worse off than they are at present. Most of my colleagues have no clue as to what Money Market, Equities, High Risk or CPI mean, never mind finding the time to actively participate in their Pension Fund well being. Big investment houses know this and therefore could not care less if their so-called investment stragies tank - to the detriment of innocent workers! . .less by Salary earner on February 08 2010, 14:02 Find this comment inappropriate? Report it

Reply to comments To all - Thanks for all the comments and good points @ Jerry That has been my experience as well. Take a look at Resources section of my website. I have put together the very best stuff I can find. With regards to . .more retirement planning, take a look at http://www.fundadvice.com/ they have really good well researched articles and information. @ Johnny V What has your performance been against theirs after fees? Most people forget that the incentives of external managers are not the same as yours. Just think about incentives in your own life, bonus scheme etc. and how that influenced you. Its very powerful and often forgotten. @ CTIFA What you say is true but I started out by putting a few thousand Rand in a brokerage account every month and slowly built my portfolio. Live below your means and invest well has worked for me. @ WT So true, just think how small the investable universe of a fund manager with R1 billion is in South Africa. It becomes an index fund very quickly. @ Simple Good point on taxes. It is the same here in Germany. It helps if you invest in one company for long periods of time but hits you if you trade. . .less by Tim on February 09 2010, 03:53 Find this comment inappropriate? Report it

Reply to comments @ vann I agree that if you do not know what you are doing the stock market is no place to be doing it. But you are also making the assumption that all fund managers know what they are doing. I know from experience this is not the case. A . .more really good starter book that will pur beginners on the right track is "Winning in the JSE" by Karl Posel. I read it a long time ago and it helped me a lot. @ Big Reef It has been my experience as well. @ Critic A CFA is a really good qualification but from there you have to look at what has worked in investing. I have a collection of the best stuff I have found in my Resources section of my website. You must also remember that 80% of fund managers worldwide does also not beat the index. Also, comparing yourself to the index is not the best way to go. I focus on yearly gains in my portfolio I do not care what the market has done. You cannot eat relative performance. @ whips excite me Emotions are the most important to master. Do that with a strategy that you know works and stick to it. @ jack of all trades master of none Good point see previous comment @ Zorba The CFA really is a good qualification and its a hell of a lot of work. But as I said its just a starting point. You know enough to be dangerous (theory) and have to start applying it. . .less by Tim on February 09 2010, 03:54 Find this comment inappropriate? Report it

Reply to comments @ Hammies Very right on costs. Build a quick spreadsheet and compare 1% to 1.5% over 20 years, you will be astounded. My motto is more buy undervalued and sell fully valued but I agree good companies can be held even if they are more fully . .more valued. I am not talking 30 PE's here. @ Salary earner That is unfortunately very true. If you do not want to manage your investments yourself then at least spend some time and find a good manager. Investment and pension matters are too important to just leave to someone you do not know and does not care. . .less by Tim on February 09 2010, 03:55 Find this comment inappropriate? Report it

Tax? What about the tax implications: On my RAs Tax money is also invested and only recouped at the end of the period, but if I want to invest myself, I take a 30% tax hit right out of the gate. Is there a way to invest retirement money yourself . .more without having it taxed upfront? . .less by RatRacer on February 09 2010, 07:17 Find this comment inappropriate? Report it

@vann you must be a fund manager lol! truth is if you cant take investing for yourself or managing your financial affairs, you wont be able to retire... `taking responsibilty for your finances is key, fund managers, and pension funds definately DO NOT . .more have your best interests at heart... . .less by JWise on February 09 2010, 16:11 Find this comment inappropriate? Report it

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