Many people in Germany stay away from stocks. The usual arguments I hear from my circle of friends and acquaintances are "Shares are too risky" or "The stock market is only for gamblers" or that the stock market is a zero-sum game in which the professionals always win and the small investors lose. It may be the case in many areas that skill and practice are critical to success. In sports for example. But not on the stock exchange. Professionals are subject to certain constraints and are therefore at a disadvantage on the stock market. I present 3 advantages of private investors over the professionals.
The constraints of professionals
Why is that? Quite simply: The managers have to contend with constraints that you as a private investor do not have.
The compulsion to follow the herd
For example, a professional regularly has to justify himself to his boss and clients as to why he is following or not following this or that trend. If the majority of other professionals follow a certain investment trend, such as Internet stocks around the turn of the millennium, the professional will have to explain things to the stakeholders if he does not follow this trend. If the masses were wrong in their assessment, everyone will fall, and the professional will not be held personally accountable. But if the masses were right and the professional was wrong, he needs an explanation. As a private investor, on the other hand, you don't have to follow a herd.
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The compulsion to always have to do something
On the other hand, when investors are greedy, prices sometimes skyrocket. While I don't recommend this for ETF savers, for people who invest in individual stocks, there are times when it's better to just sit and wait. This is very difficult for a professional, because how can he justify his high six-figure salary if he simply doesn't do anything. The constant buying and selling also incurs significant fees. As a private investor, on the other hand, it is perfectly okay to just let the depot and the savings plans run and do nothing else.
sit out losses
As a small private investor, you have another advantage over professionals: If you have excellent companies in your portfolio, it doesn't matter if prices collapse every few decades. On the contrary. You can use these phases to expand your portfolio cheaply by buying more.
A professional can't do that. His investors and boss want to see what he's doing to avoid losses and generate income. statements, like we have to sit out the crisis will not be tolerated. Because of this short-term view, the professional must sell the shares of healthy companies at rock-bottom prices. When the market rebounds, the professional is not there. As a private investor, you can ride out price losses and thus benefit from the rebound of the markets.
Three advantages for private investors
In this article I have presented three advantages of private investors over professionals. These are:
- As a private investor, you don't have to follow a herd
- As a private investor, you don't have to constantly buy or sell something, you have the luxury of being able to wait and see
- In addition, as a private investor you can sit out losses and do not have to sell first-class companies because of bad news.
These prevailing constraints on professionals can actually amplify market swings. The nice thing is: As a private investor, you can completely free yourself from it! This gives you a triple advantage over the fund managers! And you don't even need to be an expert for that...