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Stop Trading Individual Shares If You're Not Beating The Market

Nov 2, 2007
Every share investor enjoys hunting out profitable companies they can invest in, and hopefully finding a potential ten-bagger that will make them rich, but there comes a time when you have to analyze your portfolio and make harsh decisions if you're not beating the overall market.

After all what is the point in spending hours and hours researching different companies if the end result is that you are underperforming the overall market. You may as well just invest in a tracker fund that tracks the market or a top performing mutual fund and spend your time doing more worthwhile things.

I know it can be quite exciting doing your own research and investing in the companies of your choice, but professionals are paid to do the same job and will generally have access to more information than you do, and can make better informed decisions.

So take a look at your share portfolio over the years and see how it's performed in percentage terms. Then compare this to the performance of the FTSE 100, for example (or the Dow Jones if investing in US shares) and see how you compare.

If you find that the overall index has seriously outperformed your own efforts then something is seriously wrong here, and it might be an idea to seriously rethink your investment strategy.

For instance, taking the FTSE 100 as an example, this index has increased dramatically since 2003 almost doubling in value so almost all good quality companies will have risen a lot during this time. Now look at the companies you've been investing in. If they haven't risen during this time when the market as a whole has been extremely bullish, then your investment strategy is seriously flawed.

If however, you have achieved excellent gains in percentage terms then your individual share picking strategy is of course justified, although it might still be an idea to place your money in a tracker or mutual fund, depending on your performance.

This isn't always true though, because it's important to note that portfolio managers have more constraints placed on them in terms of the types of companies they can invest in, plus of course there's the added fees you have to pay for their service, so ultimately it's a matter of choice and convenience.

I personally have done extremely well investing in my own portfolio over the years and have plenty of time to do my own research. However for people who have busy lives and have maybe shown that they are not that successful in managing their own portfolio and selecting individual companies to invest in, then paying someone else to do it for you is probably the better option.
About the Author
James Woolley runs a blog that discusses all aspects of money including shares, property, running your own business, and wealth building in general.
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