Did you know that 95% of portfolio managers don’t beat their index? How can you be better than them?
I’ve been bombarded by such assumptions over the past 15 years as an investor. Imagine that professionals surrounded by scores of analysts doing research 7/24/365 and fueled by virtually unlimited amounts of cash to support their work, can’t beat the market most of the time. And us… novice investors reading a few free investing websites and financial reports think we can beat those professionals. Because if you can’t beat them, why bother spending a part of your free time doing your own research and managing your own investments?
Are You Able to Beat Other Types of Professionals?
I know for a fact that I can’t beat a pro soccer player, heh! I can barely compete with people from my own city! I also know I can’t diagnose illness and find accurate remedies better than a doctor or a pharmacist. Same rationale applies to the mechanic taking care of my car, the engineering team who designs a bridge and the contractor who built my house. I can’t be better than them, mainly because it’s their job and they are professionals. They have more knowledge, more experience and more resources than me in their specific field.
I’m pretty sure you feel the same about the professionals I just mentioned. But why do we think that we can beat the pros on the stock market? In fact, this is the wrong question as most dividend investors will answer:
I don’t mind the market, I just mind the dividend payments I receive each month
All right, but why do you care to manage your portfolio if someone else, a professional, can do it through a dividend mutual fund or a dividend oriented ETF? Just for fun, I used a fund screener to find dividend mutual funds showing the following metrics:
Dividend yield between 3% and 5%
3r annualized return over 10%
5yr annualize return over 10%
The research I completed was on both the US and Canadian markets. Can you believe I found 99 funds? Here’s the list if you want to take a look:
Forget about the fees you pay, there are plenty of dividend mutual funds paying you a great dividend with performance as well. So what is the point of investing on your own when you could simply do a little research, select a solid fund and invest all your money in it. This would take a few hours to find the fund and you would be set for the rest of your life. There must be something else… This is why I started to list the reason why I invest on my own.
#1 I’m passionate about finance
Each morning, I’m eager to read the business section of my favorite newspaper. I love talking about finance with friends and family and even studied in this field. Investing is not only a process for me, it’s a hobby. I like searching for new companies, learning about their business models and finding out more about my next stock pick. I would be sad if I couldn’t do it.
#2 I like having control over my stuff
If there is one thing I hate, it is when I have no control over something. I like to take responsibility and this is why I manage my portfolio. Buying a mutual fund or buying an ETF would take away all my control over my portfolio. I don’t pretend I can beat the market all the time, but I like to control my portfolio even if it means making a lower return. So far, I can’t say many managers would beat my portfolio since I started my dividend growth investing journey.
#3 I like to feel the dividend increase
I started to move my portfolio towards dividend growth stocks in 2010 and completed the process in 2012. Here how my dividend payment increased during those years:
During the past 5 years, my dividend income increased by 350% while I added only 11K in my account (which is about 30% of my amount invested in 2011). I like to see this progression. Even though my savings ability hasn’t been the most impressive in the past 5 years, my dividend income growth rate is phenomenal.
#4 I feel I can beat the pros
Yes… I’ll admit it, if I felt I wouldn’t be a match for the pros, I would probably not invest money in the stock market by myself. However, when I look at my returns since I started to apply my 7 investing principles, I do beat both markets and most pros. This makes me proud but I know that 4-5 years is nothing in an investor’s life… especially when you invest in a bull market. Times will tell me if I was right, but so far so good!
There is also another reason why I think I can beat the professional over the long run. Portfolio managers might be the most qualified on earth, and they are human. They make a lot of money doing their job, but they are under lots of pressure. Sometimes, you get to a point where you would rather save your job than try to do it well. This happens during market turmoil; portfolio managers may tend to concentrate on their job as they are worried about losing it.
I know for a fact that I don’t fear losing money on the stock market. I’ve experienced 2008 and didn’t budge. I know I won’t during the next crash!
Why do you invest on your own?
I’ll be honest; I don’t expect you to tell me you believe you can beat the market. I don’t think this is the reason why you are a DIY investor. This is why I’m asking you; why do you invest on your own? Why do you spend your precious time doing something a professional could do for you? I’m pretty sure you have a good reason and I’d like to know about it!