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. This article in 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.
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Direct investing – you can succeed
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 (which, by the way, is what most fund managers do).
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 practise the better you will become.
Why the government wants us to use ‘the professionals’
But what really irks me is the way in which conflicts of interest and the nanny state have taken over investment. Why do newspapers focus on managed funds? Could it be because the fund managers advertise on their pages? Why do independent financial advisers recommend funds? Could it be that they make more money this way than if we were all to manage our own portfolios, investing directly in the stock market?
The performance of investment funds is pitiful, while the fees that are creamed off investors’ money make me weep. None of this, of course, gets a mention. Instead we are fed the fiction that the savings industry can give us a prosperous old age - despite today’s pension crisis proving quite the opposite.
I will tell you what the real agenda is here.
The government does not want to give you the chance to make a great return on your savings, because you might just mess up and lose them. The government does not care whether the value of your savings is slowly eroded over time just so long as you don’t lose it in a rush and cause it a problem. So it subtly dictates that you should entrust your savings to the City; that you should ‘take advice’ from the professionals’; and that you should diversify your money across a whole range of dud investments.
Personally I hold only cash and direct shareholdings. I would not invest in a fund if one of these witless advisers begged me. If I showed my savings portfolio to a financial advisor he would probably shake his head and tell me I had got it all wrong. But I haven’t, and I know it.
I would be very interested to know your thoughts on this. Leave your comments below.
• This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.
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