Conventional Wisdom III

3) Investment should leaves to professionals

We often been brainwashed by financial institutions and media that the investment should leaves to professionals. The reasons they give are:
i) Investment involves complicated things, such as charts, financial reports…etc that the ordinary people could not understand.
ii) Investment should have a long term perspective.
iii) Investment needs people who have financial background to deal with.
iv) Investment needs to be monitored day by day even minute by minute.
v) Market would be more stabilized when the investment is made by professionals and not retail investors.
….. and the list could go on and on.

While some reasons given are true, there are some reasons given LOOK TRUE but indeed are TOTALLY WRONG!! Put in an example: Investment needs to be monitored day by day even minute by minute. What are they mean? Are they mean you should sit in front of the screen to monitor the price changes all the times when the market open? (I am referring to the investment like equities, commodities, future or option market). When the price up, we chase it and when the price falls, we dump it like hell? Is this the practice of the so called professionals? The investment decision is driven by PRICE but not VALUE? There is no wonder Warren Buffett ever said: “There are too many people who knows everything about PRICE but nothing about VALUE.”

There are too many cases where the professionals that supposed to be forces of stability when market becomes panic, act the reverse – they are even worse than retail investors by creating more volatility. You would also notice that the investment decision of those professionals could be change in the shortest period. Today, they might buy ABC equity, tomorrow they can sell it, even at lost. This leaves me in puzzle -- The decision making could be change so rapid? Isn’t it an unsound decision? or there are hidden agenda underneath that we do not know?

Before we place our money to the professionals to manage, it’s very important to understand how’s the game works – where the interest of yours and your money managers. Are there any incentives for them to manipulate your money? How their income generates? By performance, asset value or other indicators? We should not fall prey into the trap of the predators waiting to “slaughter” you while at the same time you are assuming they are creating value for you. If this happens, that’s pity, isn’t it? And this happens days and nights…

Technorati Tags: Professional, Investment, Value, Net Asset Value, NAV, Price