In the sporting arena, could any weekend warrior match it with Roger Federer or Tiger Woods?
Your son may be topping his high school electronics class, yet he’s hardly a candidate to rewire your house.
The next-door neighbour might have a keen interest in anatomy, but if he’s a plumber you wouldn’t visit him for a check-up.
Skill, experience and training inevitably draw a line between amateurs and professionals in almost every field but one – stock picking.
A recent piece in Toronto’s The Globe and Mail reinforced stock picking as a guessing game.
Titled “Five Big Blunders of ‘do-it-yourself’ Investors”, it catalogued a lack of time, lack of diversification, lack of focus on costs, and trading too often.
The fifth big blunder – inattention – showed when picking stocks it doesn’t matter if you’re trained, have experience, or even if you’re awake.
This silver lined tale of calamity described an investor attempting to buy a Gold Trust trading with the symbol of IAU on the New York Stock Exchange.
He mistakenly executed the trade on the Toronto Stock Exchange, buying a penny dreadful named Intrepid Mines, trading with the IAU symbol in Canada.
In a stroke of good luck, Intrepid Mines defied its lowly status, delivering a 500% return for the investor!
Now imagine the work of professional analysts and active fund managers chasing the latest hot stocks – countless time and effort instantly obliterated by a confused amateur.
The research of professionals results in what I’d term a ‘guessing tax’ because despite their best efforts, professionals rarely outperform the market and their fees only erode investor returns.
Costs and taxes, diversification and asset allocation are things investors can control.
Conversely, history shows stock picking and active investing are costly guessing games where paid professionals are as unlucky as amateurs.
Anyone still paying the guessing tax should start asking themselves why.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL / ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re Australia’s top financial adviser.
