HOW TO PICK UP STOCKS?

There are two schools in the investment business. One prefers to own indices like John Bogle’s Vanguard Group and as gossip says now Buffett recommends to put all Berkshire Hathaway’s assets into a cheap index fund after his death. That is pretty common that the index fund investors are not „on hand” traders, but mostly „off hand” traders, which means they are in the vast majority of time they are passive traders and do not manage actively their portfolio.

The other school is the stock pickers. They have overwhelmingly „on hand” strategy and reshuffle daily or weekly basis their portfolio time by time. They are actively managing their portfolio and addicted by the market and check each out their positions. They love the gambling part of trading. They have smartphone and go to bed with stock market data and get up with them in the morning. That is obvious they are burning their energy, having huge stress, but the point is that most of the cases they are underperforming the index follower guys. They are the stock pickers. They fully believe they are able to beat the market and always seeking the alpha. But they lose always. Why? Because the market is inefficient and it is not possible to forecast which stock will perform well and which will not. We are as human beings are horrible stock pickers and market timers. It is not only a small investors specification, it is true about the big guys, the big funds as well. An average equity fund investor lagged behind the S&P500 by 3.96% on an annualized basis. Retail investors are really underperforming. In a 60/40 stock-and-bond split had a weighted average return of 7.46% over the 20 years ending in 2012, according to Dalbar's numbers. The typical retail investor experienced a weighted return of just 2.94%.

How can we beat the average? It is much easier than you think. Don’t buy the mainstream’s favourite, popular and well performing stocks, buy the boring ones and close your ears when the media wants to sell you any fancy stock. Being a good stock picker this is the only way, if you buy the undervalued and underperforming stocks. Own that which company’s valuation seems temporarily depressed. Whose track record is the most miserable.

DO YOU WANT TO EARN OVER 30% PER YEAR?

Invest into our fully regulated Swiss Managed Account Fund: http://www.theblindfoldedmonkey.com/managed-accounts

The BFM Assets Team.