Who do you think will be the best portfolio manager among the experienced portfolio manager responsible for hundreds of millions of dollars?
It is a closer competition than you might expect.
While institutional investors demonstrate an incredible skill in choosing new stocks, a child who randomly points to the list will usually get better. sale decisions. So says a recent study by three economists, a professional investor.
It’s a funny picture, but it raises an alarming question. If even the best do not usually invest in the stock market, what should an ordinary person do?
Investors vs. Newborns
The study Sell fast գնում buy slowly, analyzed the history of 783 portfolios owned by both wealthy individuals and institutional clients, such as pension funds.
The professional investors responsible for these portfolios are very rich, controlling the average value of each of about $ 573 million.
To judge how well the elite investors performed, the researchers compared their sales results with the results of randomly selected alternatives, the smartest of which was their strategy.
The parties blew up the random selection when it came to their achievements. On average, the shares of these major investors exceed 1.2 percentage points. That small margin is possible whole lot When millions are on the line, you take into account the strength of the composition.
As for selling them. Well, let’s just say that a happy kid should get calls from BlackRock right now.
A completely random selection would enrich their customer portfolio by 0.8 percentage points in one year.
Human nature overcomes investment genius
Reason why? is a simple psychology that affects even the best of us.
The title of the study refers to the book by Nobel Prize-winning psychologist Daniel Kanneman. Thinking, fast և slow. The book suggests that the brain works in one of two ways: intentionally կամ rationally or automatically և instinctively.
When investors make purchases, they are more likely to stop, focus, and make truly strategic decisions. After all, this is where all the glory is. Buy an incomprehensible stock, which will later climb. They tend to pay more attention to the shares they actually own.
Investors do not put the same thought and care into the sale, which is likely to be an instinctive reaction to some negative event. And when a stock is sold, investors stop paying attention to it, so they will not notice if they made a mistake and threw the real winner.
“Extensive interviews suggest that they are mainly focusing on finding the next great idea to add to their portfolio; sales are generally seen as a way to raise cash for purchases,” the authors write.
What is breakfast?
So if these high-paying eggs, the ones that drive sports cars and travel to Bali every month, are missing, what is the right move for the average investor?
Well, you can try to be more aware of your bias by stopping before each sale և eliminating trading fees with a zero-commission investment plan. Or if you can, you can simply avoid selling.
Omaha Speaker’s Warren Buffett himself is a staunch supporter of the “buy and keep” approach, joking that his preferred moment is “forever.” He has held shares in Coca-Cola and American Express for nearly 30 years.
No matter how horrible they look on a particular day or week, consider holding back, as suffering stocks often recoup their losses and then some. The S&P 500 index quickly recovered from the aftermath of the epidemic, doubling its performance in just 354 trading days.
You can take a more passive approach to investing by building a diversified portfolio, either on your own or with the help of a robot consultant. One popular program allows you to invest using only your “backup change”.
Hold on tight և Keep your eyes on your long-term goals. In the case of passive investments, you do not need to predict where your shares will go.
This article provides information only: should not be construed as advice. It is provided without any guarantee.
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