Demoralizing Realization that I can't beat an Index Fund

[epower]

I've been researching the markets and stock picking on the NZX primarily (with the odd ASX purchase) for approximately 8 years now.

Over the past week I've scoured through all my prior stock buys, sells and taking into account the commissions, foreign exchange and opportunity cost of the funds sitting in a cash management account waiting to buy the next opportunity. I've gone back to my very first buy in early 2010, Ryman Healthcare.

I've come to realize that after countless hours of reading annual reports, press releases, analyst research reports, etc that I would have been far better off to simply just drip feed into an index fund of the NZX50 or S&P500.

I was going well until year 4/5 but then my career took up a lot more of my time and energy and I moved into management roles in my later 20s. I made a couple of horrendous mistakes in my investments in the past year or two, Slater & Gordon being the big one. Then a new partner (now wife) came along and she is much more interesting than looking at annual reports in my weekends.

So all in all, a roller coaster ride with countless hours of reading and research all for the same result that could take me 10 minutes annually to replicate buying an index fund. Very demoralizing and a very big hit to the ego as I was sure that I outpaced the index even with the odd big loss.

I've thought about creating a "virtual portfolio" to keep my inquisitive side alive but it doesn't feel the same without my own cash on the line.

Anyone else come to the same conclusion or want to chip in with a story or two?

[sonny n share]

Yes it can be discouraging when your picks don't work out.



Have some in index and some in individual ?Index will be a smoother ride.
Individual will be more volatile.


The sharetrader picks for 2018 have done pretty well so far this year ?
https://sites.google.com/view/sharetrader-picks-2018/home



NZ top 50 fees have gotten cheaper if you have over $10k
https://www.interest.co.nz/personal-finance/93031/simplicity-launches-investment-funds-track-nzx-top-50-and-nz-bond-market





Over 10 years
Ryman is +20.78%pa
FNZ +7.37%pa
according to sharesight.com

[Pipi]

I hear you mate. I have come to the same conclusion. I don't have the experience or the time really. And have now bought into several index funds, where I drip feed into monthly. Will still keep my stocks that I have, as they were long term buys.

[Balance]

https://www.cnbc.com/2018/01/03/why-...nvestment.html

Unless one is a Warren Buffett - hard to beat the index.

[Pipi]

https://www.cnbc.com/2018/01/03/why-...nvestment.html

Unless one is a Warren Buffett - hard to beat the index.

So true Balance, I read all this and thought about it about 5 years ago. Wish I had got into them then. I'm 18 years off retirement, so if I keep feeding into them, hopefully it will give me a comfortable retirement.

[Balance]

So true Balance, I read all this and thought about it about 5 years ago. Wish I had got into them then. I'm 18 years off retirement, so if I keep feeding into them, hopefully it will give me a comfortable retirement.

I had a debate with a very prominent fund manager on exactly the same topic at an investment forum years ago in New Plymouth - he worked for AMP.

Got my aggro up when he and a few other fund managers kept on blaming the 'market' for their poor performances (while collecting huge fees) and how they did try to beat the market!

Basically I told them that collectively they were the market so how can they blame the market?

Fair to say he and the other fund managers there spent the rest of the time at the forum justifying why they were the exceptions!

[voltage]

very good points, all the research does show that over a 10 year period very very few managers can outperformance an main index. So all you need is the new low cost NZ50 and a couple of global vanguard ETFs which you can access cheaper on the ASX. You will now out perform most managers. However, I do like some direct holdings like Visa, Google. Perhaps limit this to 25% of your portfolio.

[zgnz]

I take a split portfolio approach. (currently about 66% indexes)

Most of my individual picks are high conviction/opportunistic buys (for the long term) -- Usually only a few companies, within my circle of competence.

Works well for me, as I can be very selective, and not have to spend all day researching or watching the portfolio!

[huxley]

Great post mate. I think letting the index do the heavy lifting is a wise decision, you could however keep a (relatively) small percentage in some high conviction investments. But like you say, if you’re got better things to do with your time you may not be interested in this either.

[silverblizzard888]

It is indeed a very demoralizing view to see that putting a lot of time into understanding stock investing and then researching companies to invest in and then realising that you aren't beating the market. Beating the market isn't easy, but certainly doable, though you need to have a good disciplined and consistent approach. I don't know what you've been investing into, but as you mentioned one of your investments was Slater and Gordon, this tells me you have an target of undervalued companies trying to make a turnaround. In my experience trying to pick a good turnaround is often quite hard because everyone wants to get it at the bottom, though without consideration that things can always get worse. Turning a company around isn't easy and especially one with a lot of debt, if one thing is to go by, is to stay away from companies who have large debt and have no prudence in reducing it or lack of ability to pay it back in a short frame of time.

If you can profit off stocks it means you have a good instinct for stocks, but if you can't beat the market then I'd say thats more to do with your approach rather than being bad at beating the market. Before you invest into a company you have to consider what can go wrong as much as what can go well. You have to look at the return and make a fair judgement of what you would expect the return to be. Generally I make it my target to get at least 20% return (beating the market) and I plot a strategy calculating how much I need each company to perform to get to my targets, if a company isn't performing its gone. You have to be cut throat in picking companies, no room for secondary performance, you want the best companies, companies with good management who grow beyond everyones expectations. Most people buy companies with the sight of a positive return, but if you want to beat the market then you aren't just looking for a positive return, you have to look for companies that will show an out performance return.

For a while I was kind of stuck in a rut, I kept investing without getting sizable returns, I acted more on hoping a company with a good story would do well or turnaround for that matter and out perform their forecast, but more often than not companies perform to their forecast or below. I have realised that betting on the best companies for the long term will achieve you a better return than the market than trying to out smart the market and picking possible undervalued plays that might be turning around. We are all playing with our time and money, so you have to be strict on time with your stock investments.

Its fair if you dont have much time then an index fund might suit you more since it performs better than a lot of asset classes without requiring too much of your time, though you shouldn't feel bad about all the time you're spent learning investing because as most of us will agree investing is a very entertaining activity. Maybe you might come back to it in the future, if not at least you know how the stock market works and how companies build value. As well as knowing what the index really is, while most people who only invest in the index have no idea how it really works, almost like putting your money in a black box since you don't know whats in it, but for you at least you can break it down and understand whats in it. As most people above have pointed out you don't need to take one approach or the other, you can invest majority into a index fund and keep a little play money to pick you own companies and tailor your approach.