Why You Can Succeed at Direct Investing.
My weekend was going well – calm and peaceful, I was sifting through the weekend papers whilst sipping my morning coffee. Then I read an article that nearly made me spit my coffee right out again. The Times really made my blood boil and has been simmering ever since. It takes a lot to rile me, but this article really vexed me.
What utter, utter rubbish
The Times tackled the matter of DIY investing. ‘Is it worth a shot?’ it asks.
DIY investing means investing directly into shares and making your own choices. To help answer its question The Times called upon some financial advisers. Here is what they said.
‘Direct investment‘, says one, ‘is for people who can afford to lose most of their initial investment.’
‘We very much see the element of a client’s portfolio in individual stocks as that part of their portfolio which they manage themselves for enjoyment… and that any potential losses will have a negligible impact on their overall finances.’
In other words, they imply, you are pretty much certain to lose some, if not all of the money that you personally manage. But so long as you get some fun out it, regrettably they cannot prevent you from this misguided endeavour.
‘If a client insists on individual stocks representing a core part of their financial planning strategy,’ he goes on, ‘they would probably need a minimum investment of 250,000 to obtain a diversified portfolio of holdings and to justify costs and charges.
So not only is direct share investment a bad idea, these so-called experts would have you believe, it is also only for the big boys.
I cannot find the words to adequately express just what utter rubbish this is. Let me refute just some of these utterings.
First of all, you do not need a huge amount of money to invest directly on the stock market. You have to start somewhere, and if you only have a little, don’t let that put you off.
Second, in my opinion, diversification is overrated. Of course you should not put all your eggs in one basket, but rather than deciding how many shares you should own you should concentrate on buying good ones without having to feel you ought to make up the numbers with a lot of poor ones.
Next, it is not true that direct investment is doomed to failure. I know plenty of people who invest directly in the stock market and make a very good return from it. But I know absolutely no-one who has been made rich by his fund manager or financial adviser.
Strangely The Times chose to illustrate its article with a photo of Warren Buffett who has, of course, made a fabulous investment return by investing directly into the shares of good companies and sticking with them.
For sure you will make some mistakes and take some losses. But you will learn from these and, as with anything else in life, the more you practice the better you will become.
Contributing Editor, MoneyWeek (UK)
Publisher’s Note: This is an edited version of an article that originally appeared in MoneyWeek (UK)
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