Back at the end of 2012 newspaper The Observer set up a challenge. It pitted some of the biggest professional investment managers in the country against some students from a Hertfordshire school and Orlando the cat! You can read the original article here.
The challenge was simple, each had to pick 5 companies from the stock market whose shares they thought would make the most profit by the end of the year. Each of the participants were able to ‘sell’ and ‘buy’ different shares every 3 months to potentially increase their chances of generating a better profit.
Whilst the investment professionals were able to call on their years of share picking ‘experience’, Orlando had to throw his favourite toy mouse onto a grid of numbers that represented different shares.
And the winner was……….Orlando of course! The cat was able to generate a profit of 10.84% over the year whilst the professionals only generated a profit of 3.52% and the students unfortunately made a loss of 3.20%.
On a serious note what this goes to show is that it is very hard to predict and beat the stock market. Investment professionals constantly outperform the general market over the long term and yet charge high fees for their supposed expertise. How are they able to get away with it you may ask? Well they spend massive amounts of your money on advertising, appearing in the media and seducing advisers to then ‘sell’ their investments. People are misled into thinking they are paying for a quality investment manager. Well unfortunately investing is one area where you DON’T get what you pay for.
Investing is not about constantly buying and selling shares to try and make a profit, that’s called stock trading. Investing starts with thinking of your long term goals, what do you want out of life? Next you build an investment portfolio that will give you the best chance of achieving those goals. Thirdly you need to control the things you can. You can’t control what investments are going to do but you can control costs. You want to minimise costs as much as possible. Finally, you need to remain disciplined. Don’t follow the crowd and overreact when the stock market drops or increases, stick to your plan and you will be rewarded in the long run.
At RTS Financial Planning we have a load of data that can show you just how powerful proper investing really is compared to the stress and likely failure of trying to pick shares. We focus on what’s really important, you and your plans, the investing part just works in the background helping you get there.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.