Just recently, I replied to a comment from my good friend Melanie Ng on our Freedom Trader Blueprint Students’ Facebook group when I saw a limiting thought about not being able to beat investing in managed Funds.
I thought I’d share my reply to her with you, so you too can overcome any limiting beliefs you might have that you can’t beat fund managers as an everyday investor.
5 Ways The Everyday Investor Can Outperform Fund Managers
As long as you stick to The Freedom Trader rules, you can always be better than fund managers.
Because as individual investors, we have several advantages that they do not have:
1. Portfolio size difference
Fund managers cannot just buy and sell like us because of their sheer size and volume movement.
Could you imagine buying $50 million of one stock in one go and how much that purchase alone could affect the market price?
That’s why fund managers don’t do this. Instead, they purchase stocks in smaller increments spread over time to prevent price fluctuation.
I experienced this when I used to manage funds for a famous Aussie fund manager – it would always take up to a month to accumulate or dump stock without affecting the market prices too much.
2. You’re your own boss
Fund managers have a boss as well as investors to answer to.
As individual investors, we don’t. We’re in total control of our decisions of when to buy, when to sell, and what to buy or sell.
3. Fund managers aren’t allowed to hold cash
Fund managers are not allowed to hold more than 5-10% cash under their mandate. This means they must have at least 90% of their funds invested – even if they can see a market crash coming.
As a result, pretty much all managed funds lost close to 20%+ during the COVID-19 coronavirus market crash in March 2020, including the great Ray Dalio of Bridgewater, who is considered one of the top 3 on planet Earth.
4. Fund managers are subject to the fear-based decisions of investors
Most managed funds are open funds, which means that they are subject to withdrawal redemptions and forced to sell (even good stocks they want to hold) because their investors want their money back due to fear. As a result, they have to sell to meet the withdrawal.
As individual investors, we have the ability to hold on to good stocks that we know are only temporarily dipping before recovering – provided we manage our emotions appropriately and have conducted research correctly.
5. Fund managers are human too and sometimes get caught up with everyone else’s fear
Fund managers are surrounded by news and media 24/7, which can sometimes sensationalize and exaggerate events.
Like us, they are also human and can sometimes get caught up with the fear of their colleagues (I’ve seen this happen with financial planners and institutional brokers during the COVID-19 crash in March 2020).
As individual investors, we are more shielded from being away from the markets. This is why Warren Buffett loves living in Omaha and not New York – away from it all so he can always think clearly.
Darren & Fiona Sanders: Not Having Their Life Controlled By Someone Else
Understanding how professional fund managers are just as (if not more) susceptible to making mistakes with your life savings as we are as individual investors can be scary to think about.
But it can also be liberating.
Darren and Fiona Sanders are Australian farmers who had issues trusting their hard-earned money to brokers and fund managers, especially after Darren watched his dad lose ¾ of his stock market investment through one when the Global Financial Crisis hit back in 2008.
Since then, he’s been looking to take charge of his own portfolio.
That’s why he liked The Freedom Trader Blueprint process — he didn’t want to rely on someone else to hand him a fish… he wanted to learn how to fish himself so he could feed his family for years to come.
He also wanted to ensure he remained financially secure in the event of something undesirable such as a drought.
After all, farm life is risky. One dry season can rock their entire year’s revenue.
Today, Darren and Fiona’s stock portfolio is hovering between 12.5-15% ROI.
They love the peace of mind that comes with knowing that no matter what happens on their farm, they have a method of consistently generating wealth in the stock market.
Stick to the rules, and you’ll do well
If you stick to rules and take the right actions when the time comes, you will have the ability to outperform most fund managers out there.
It doesn’t come overnight.
And you will need to know what you’re doing.
Unfortunately, a lot of people have lost money unnecessarily – whether from:
- blindly following ‘hot stock tips’ from friends, family, or even market reports without conducting their own research first
- similarly, entrusting their money to other people and having them lose money on their behalf
- not being able to foresee and prepare for market crashes before they happen
- not understanding when the best times to enter and exit the market are
- getting caught up with hysteria or fear from the media and either purchasing/selling at the wrong time
- lack of understanding in how to actually analyze stocks and separate the cream of the crop from the bottom of the barrel
That’s why I created my signature stock investing/trading process, which I’ll be sharing in my FREE 90-minute online masterclass.
It’s a highly interactive class, complete with practice exercises and your own downloadable workbook, and I guarantee you’ll walk out of the Masterclass with the ability to ‘see the matrix’ of the trading and investing world.
If you’d like to join me, book your spot here, and I’ll see you on the other side 🙂