The Easiest Way to Beat Your Fund Manager


LONDON -- Ultimately, there is only one reason we Fools buy stocks and shares: because we think we can make more money than if we handed our cash to an expensive fund manager.

If you don't think you can beat a fund manager, you should hand your money over and let the pros do the hard work. Both of you will be richer as a result.

Yet you don't, because you think you can do better -- which is madness, quite frankly, because the odds are stacked against you.

Size is everything
You have to be crazy to think you can beat a fund manager. They're bigger than you. They're richer than you. They're backed by expensive teams of researchers and clever computer programs that you can't get for free on the Web. They spend their days grilling company bosses who wouldn't give you the time of day.

This isn't David against Goliath; it's much more one-sided than that. Goliath has back-up. You're outnumbered, outgunned, and out of your depth.

You can't hope to compete, sitting at your computer terminal in the odd spare hour between doing your day job, washing the dishes, and watching your Game of Thrones box set.

So why don't you meekly hand your money over, fork out that annual management fee, and be grateful?

Because you still think you can bring the big guy to his knees.

Having said that
To be fair, you do have some firepower. Thanks to the Internet, you have access to company reports, performance data, market analysis, message board rumors, stock tips, charts, and technical analysis (if you can understand it).

You have the Motley Fool at your side, and plenty of other private investor websites.

Managers have all that stuff and more. But you have one weapon they lack: time. Time is on your side.

Busy, busy
Fund managers don't have time. They have targets to meet, reports to write, mandates to fulfill, new investors to impress, and both existing investors and a board to satisfy.

If their fund underperforms for a year or two, their reputation is on the block. Investors are a fickle bunch. They love a winner, but they quickly fall out of love with a loser.

A handful of fund managers can afford to be patient, such as Neil Woodford at Invesco Perpetual, because investors have learned to stick by him. But most are scratching around for an instant result.

You're not. You can afford to take your time.

Virtuous circle
As I recently pointed out, there are seven deadly sins of investing, but there is only one virtue: patience.

All my best investment decisions have ultimately come down to being patient. Take my stake in Ladbrokes. That was an also-ran for the first two years, but I stuck it out, pocketed the dividend, and waited for it to hit form -- and it has. I'm up a reasonable 15%, and it was more before the recent stock market dip.

FTSE 100 (INDEX: ^FTSE) drinks giant Diageo (NYS: DEO) isn't a flaming Ferrari of a stock, but I'm glad I tipped a drop of it into my portfolio three years ago. It has grown slowly and steadily, and I'm up around 35%.

Ditto insurance giant Prudential. I didn't sell in a huff following chief executive Tidjane Thiam's ill-fated Asian adventure, but waited for the market to forgive him. The stock has recovered nicely since.

I'm also sticking with Aviva (NYS: AV) and BP (NYS: BP) both of which have taken a pasting over the last couple of years. They'll be back. GlaxoSmithKline (NSYE: GSK) and Vodafone aren't exactly shooting the lights out, but the dividends keep rolling in.

And I plan to hold my trackers for decades.

Virtue rewarded
I'll let the City pros thrash around, trying to predict the unpredictable. Nobody can foresee what will happen to this crazy stock market. Anybody who tries is a Mystic Mug.

Not me. I freely confess I don't know when it will recover. I only know that it will one day. As the old Chinese proverb says, I'm sitting on the riverbank, waiting for things to change.

Any fund manager who said that would be fired on the spot.

When the market dips again, I'll be buying. And then I'll be holding -- patiently, for years. Better still, I won't have to pay any hefty fund management fees. I may sound more like a tortoise than a hare, but I bet I beat that fund manager in the end.

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At the time thisarticle was published Harvey owns no shares of the companies mentioned above.Motley Fool newsletter services have recommended buying shares of Diageo and Vodafone Group. The Motley Fool has a disclosure policy.
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