Must Do Your Own Investing not others

With tens of thousands of mutual funds, Unit trusts, insurance groups, money mangers vying to invest your money you would think the easy route to riches in the stock and futures market would be to invest in a top-performing fund, sit back and wait for the cash to roll in. Not so.

The funds have some problems you should be aware of before you invest your hard earned money with them. Here they are:

1. Actually, not many funds perform any better than the averages. If the DJI rises by 25% over 90% of funds will have similar returns. And after they take their 5% management cut you are left with a poor return. If this is the case then why not simply buy a basket of diversified shares of the overall index, as this will perform in line with the overall index, and save your self the management fees?

But what about when the overall index declines by say 15% year on year? Ask your money manger and they’ll tell you the old clichés:

You must take a long-term view. The market corrected this year but next year will be better.

This needn’t be the case, as I will explain later.

Keep this in mind. During the 1974/1975 Bear Market stock indexes declined by over 50%. During the 1987 market crash the index fell by over 30% in the space of a couple of months. From March 2000 to December 2000 the NASDAQ has declined by over 50%. How would you feel if your money manger reported at the end of the year that your hard earned saved money account is down by half?

What about the top ten performing funds? What you will find here is that in order to be a top-performing fund their size is relatively small, this gives them much needed flexibility. So it is actually quite hard to get money into these funds.

Many of the top performing Hedge Funds are open only to a small select few and then close their doors to new money.

2. Size. I read recently the Mutual fund Industry is pumping over 1 Trillion dollars per MONTH into the stock market. Some of these monster funds now manage portfolios worth tens of billions of dollars. This alone restricts the funds to large cap stocks (the poorest performing) But most of all when things turn bad they simply can not get out due to their enormous size. For this reason they HAVE to adopt the buy and hold strategy. This is the individual investor’s BIGGEST advantage. We are the speedboat darting in and out of small rivers; where-as the mutual fund is the slow, cumbersome, super tanker. Restricted in its movement.
3. Management Philosophy:

Whilst I have up most respect for all professionals sometimes I wonder if some Mutual Fund mangers actually know anything about investing in stocks. In fact I know some do not. When I read the report on the Mutual Fund Manager and he talks about diversifying into over 100 different stocks, being invested fully at all times, not cutting losses for not wanting to time the market, not investing in small cap stocks because of lack of quality" I know most of these rules are set not because they bring superior stock market returns but because of the size of the funds under management and the attitude of the board. How would you feel being told your fund was still invested in Yahoo despite it being some 70% off its high?

Why not get out when it fell by 10%, 15%, and 20%? To buy and hold despite all is a sure way to disaster in the markets. Yet even the funds seem powerless when it comes to this golden rule.

Many Funds are stuck in a time warp. The markets have changed since the 1960’s and will continue to change. What worked for Warren Buffet in the 1960’s - 1990’s has failed for him in the year 2000. You must be willing to go with the flow and accept change. Man Funds will not.

 

So if many funds perform in line or below the general averages, are too big for their own good and have detrimental attitudes how can the individual investor go it alone and perform much better? In order to beat the Mutual funds by a wide margin you have to "piggy back" on their hard work but exit long before they can.

 

What Advantages do we the Small Investor Have?

1. Flexibility.

Without doubt our number one asset.

We can a favorable share where a massive Mutual Fund buying spree has created an upward trend. We jump in make a big profit. When it starts to look ugly we quickly op off Take the money to the bank

Or if we buy into a share and it goes sour straight away we quickly jump off with a small loss. Preserve your capital is the name of the game.

2. Focus.

Most funds are so diversified they will never perform any better than the averages. If you own more than 5 different stocks you are not focusing enough. The BIG money is made by putting large amounts of capital into that one HOT Stock we are lucky enough to find from time to time, not by buying a big bunch if average shares.

If one sector is the HOT sector we can concentrate all our efforts in this sector.

3. Variety.

We can invest in Micro cap shares, small, medium, large, options, shorting, margin, etc. We don’t have to answer to any one but our selves. We can use the full range of instruments available.

4. Time.

With the advent of the Internet there is no need to spend hour after hour pouring over company financial statements, reports, analysis, etc. If you follow Momentum Share Trading System then trading will not take you more than 10 minutes per day.

 

The Internet has leveled the platform so much I wonder how many people realize the advantage they now have. Years ago many wannabe investors would subscribe to newsletters in order to manage their own accounts but let some one else tell them what to buy and sell (very contradictory) this would cost from Rs 2000 up to Rs 10000 p.a. A lot of money but now with the filtering mechanisms of the Internet there is absolutely no need to subscribe to a newsletter. Everything you need to know to make sound investment decisions is now available.

For example, with Yahoo financial services you can set up a filter that will present a list of all the shares on the market, which have the strongest 20% earning record, are being accumulated and have been trending upwards. Then, if you so wish, you can go into a company profile and read about their products, sales, debts, management etc. What more do you need? And it’s free.

Years ago this kind of data could only be afforded by the big companies. This is the data they employ hundreds of analysts to sift through every day. Now it’s available to them man on the street at the click of a mouse.

Of course even when you have compiled a HOT list of the best shares you must know how to trade them correctly for maximum return.

A trader must know where to enter a share, where to get out if it doesn’t act right, where to add positions in a share which is acting right, where to exit the trade, how to interpret the trend and much more. With the right system this is easily obtainable. Momentum Share Trading System will show you how to trade like a professional.