The Advantages of
The Advantages of Being a Private Investor
✎Manuel Mauricio / February 17, 2019
I first started writing this article a few weeks ago when I made the decision to release one article every sunday but somehow procrastination got the best of me.
As I now seat on the porch of my girlfriend’s grandmother house on a village with no more than 20 people, my feet bathed by the premature spring sunlight, a flock of birds chirping on a bushy tree next to me, I think to myself: This is without a shadow of a doubt, one of the greatest pleasures of being a private investor.
I can just calmly do my research, there is no rush in presenting results, there are no limits to where I can look for good companies, I take my eyes off the screen and just gaze at the bucolic landscape in front of me, everything seems to go in slow motion. Ah, such a peace. Time stands still here. Hey, there’s the rooster!
Whenever I’m here I think to myself, wouldn’t it be great to live everyday like this? But I know myself better. Soon, I would be unrest wanting some cosmopolitan agitation. And that’s the beauty of it. I can decide when to come here, and when to get out of here. That’s one of the best things private investors have on their side: The freedom to decide.
Yes, I know. Why should we invest by ourselves if there are a lot of professionals out there to whom we can just hand over our money and relax? And why not invest in low cost ETF’s? It’s too hard to outperform the market, you might say. Let me start by telling you that you are right.
Not everyone has the right character, skills or the time to invest in the stock market. It’s no easy task. But there are a lot of advantages to be managing your own money too. Let’s take a look at some of the advantages you have on your side:
“Successful (microcap) investing is so much more than the ability to read financial statements. If it were that easy, everyone would be doing it. “ – Ian Cassel
1- You don’t have to answer to anyone but yourself.
When you invest your own money you don’t feel the stress of answering to a boss or to clients. You can do exactly what you want, when you want and how you want. You don’t have to show results next quarter or even next year. Well, maybe you do to your spouse but that’s a whole different story and I’m not here to talk about that.
2- You’re free from most professional constraints.
Most professional money managers are specialists in their fields, whether it’s Retail, Tech or Oil & Gas. That must be boring, right? As a private investor you can choose where to look for value. You’re not stuck to a predetermined sector, country or index.
If you feel more comfortable on one sector and you don’t want to step outside your circle of competence, that’s perfect. If on the other hand you want to widen that circle every day, you can do it to.
If you’re not finding good companies at attractive prices, you can just keep cash and wait for the perfect pitch. There is no pressure to be fully invested like in most funds. And when you finally get convinced you’ve found the right company, your biggest position can represent 30% of your total portfolio. No one is stopping you!
And although you might not see this as a HUGE advantage, believe me, IT IS!
“Don’t confuse activity with productivity. “ – Robin Sharma
3- You can be a true contrarian.
It should come as no surprise that in order to get better results than everyone else, you’ve got to be doing things differently from everyone else. And yes, I know, this is much easier said than done. That’s why there aren’t that many Warren Buffett’s out there.
A professional fund manager will likely go with the herd because he will be worried about his job security and it’s better to fail alongside others than to fail alone.
Just imagine that the manager invested on a small company no one knows. If for any reason this investment doesn’t go according to plan, the manager will be blamed because he should’ve known better.
If on the other hand, this manager invests in Apple and something goes wrong, “it’s not his fault”, “No one saw that coming. How could he?” This survivorship bias is preventing the fund manager from thinking independently and finding great stocks when nobody is looking at them.
Unlike the fund manager, you can invest in overseen companies and find hidden gems before “smart money” can even think of looking at them. And that my friend, is another huge advantage.
4- The fun of it.
If it wasn’t fun, there would be a whole lot less investors out there. That feeling of excitement when you find a company that you like and believe in is one of the great pleasures in life.
I’m not talking about the instant gratification of a short term strategy, I’m talking about discovering a great business, one that the more you dig in, the more you like it. There’s no other feeling like that. It’s amazing how just three pieces of paper (the financial statements) can contain such treasures just waiting to be found.
5- Lastly, time is on your side. All you need is to take advantage of it.
You can relax and take the long term approach to investing. Take whatever time you need to get to know that particular company you’re interested in.
Companies don’t double profits in a week, they don’t improve their processes over night and management is composed of humans, not machines.
Take time to know the business, the managers, clients and competitors. And give it time. After finding the right company, hold it until something fundamental has changed.
To sum it all up, just because you are a private investor doesn’t mean you are running behind someone else. There are a lot of private investors that have grown their money many folds and nothing says you can’t be one of them.
So please remember:
Big Money doesn’t necessarily mean Smart Money.