You Have the Advantage Over Wall St.
I’ve said it before that an amateur who devotes a small amount of study to companies in an industry he or she knows something about can outperform 95 percent of the paid experts who manage the mutual funds, plus have fun doing it. – Peter Lynch
I know it sounds crazy. But you have a huge advantage over Wall St.
You don’t have to follow the same portfolio rules and investment mandates required for managing big institutional money.
You don’t have to own a specific number of stocks. You don’t have to worry about comparing returns against a benchmark.
You’re not competing with anyone other than yourself. You can work on your portfolio any time you want.
You can stick with simple value investing rules and methods. (Wall St. uses complex modeling and hires PhD’s to create advanced computer trading algorithms.)
Wall St. spends millions of dollars on investment research. If you wanted to get independent done-for-you research and information, you could easily buy it for two or three thousand dollars a year.
Sounds expensive, but it’s reasonable for the average investor. If you cut out the five-dollar coffee at Starbucks every day, you could use that $1,825 on additional independent research.
There’s no investment committee ready to fire you for only getting three out of ten stock picks right.
You see, in baseball, if you get three hits out of every ten at bats, you’re well on your way to the Hall of Fame.
As an investor, you’re the batter. You’re the one in the box waiting for the fat pitch.
You don’t have to swing at curveballs. (Although it can be tempting.)
You can wait all year long for that one pitch right down the middle. There’s no rush. You can be patient.
Wall St. doesn’t have this luxury. They need to swing often because they report results every quarter.
Warren Buffett has a great quote about this. He says,
“I call investing the greatest business in the world … because you never have to swing. You stand at the plate; the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.”
Buying what you know is another advantage you have against Wall St.
If you’re spending more time planning your Christmas holiday than researching the stock you just bought, then you’re not buying what you know. You’re gambling.
Before you buy any stock, you should be able to explain what the company does. You should be able to tell your neighbor about the products and services it sells.
If you can’t do that then you shouldn’t buy the stock.
There’s one other important advantage that you have… You only need to be right a few times to make life changing returns.
As Warren Buffett says, “You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
In other words, you just need to hit a lot of singles and a few doubles.
You don’t need to swing for the fences every time. More than likely you’ll strikeout.