Where a small investor has an advantage over the professional, if you follow sound principles

PUBLISHED: 03 Dec 2016 @ 21:23 | Comments (0) |

I’m going to start the analysis of Lamprell soon (LSE:LAM), but this will take a few days. In the meantime, here are some thoughts on one of the reasons why small investors can have an edge.

“Between the chance of making an unusually large profit on an unknown company and the assurance of losing only a small amount on an established company, the normal mutual-fund manager, pension-fund manager or corporate portfolio manager would jump at the latter. Success is one thing, but it is more important not to look bad if you fail” Peter Lynch

The incentives and therefore the psychology of fund managers are different to those of the intelligent small value investor. The latter is interested in increasing wealth over a period of years ahead of inflation. The fund manager, on the other hand, is most focused on holding onto his/her job over a much shorter time scale.

Fund managers know that vast majority of their colleagues fail to outperform the market after charges to clients. This means that the odds are against them when it comes to standing out from the crowd by performing exceptional well.

Of course, they could take what they would see as “high risk” by buying a portfolio of unloved and neglected value shares.

But what if the share price fell in the next quarter? And the quarter after that? Even though……To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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