Don't Do It Yourself--Go for Mutual Funds!

Early in my career I attended an investment conference where various money management firms made presentations on their approach to investing. A company that specialized in large U S growth companies was asked why they did not hold a particular stock that appeared in most other growth portfolios. The answer was that when they interviewed the management, the management could not effectively communicate the details of their business. The company that was subject of the question was Enron. Three years later Enron was bankrupt.

Stock selection takes time, talent, and temperament. I cannot imagine any individual being able to outperform the professionals over a long period of time. Every industry study backs up that thought.

Time – If stock selection is not your career, you do not have the time to do it properly.

Talent – If you are not trained in how to research companies you do not have enough information to make effective decisions. With no exception, every time I ask a do-it-yourself stock picker what their sell discipline is, I get a blank stare. A good money manager has a sell target on every stock they select. They are periodically reevaluating whether to sell or hold a stock.

Temperament – When we shop, we look for bargains, we look for goods on sale. Typically, when stocks are on sale, we are afraid of them and when they soar in price, we want to get in. In other words, our emotions drive us in the wrong direction.

The beauty of mutual funds is that they allow the small investor to access professional money management at low cost. We are hiring people with the time, talent, and temperament to make good decisions on our behalf.