July 8, 2008
If you’re reading this article, chances are you’re an amateur investor.
Whoa there! No need to get angry. I’m paying you a compliment. Sure, to most people, “amateur” has negative connotations — it implies a lack of skill, a lack of commitment. But “amateur” comes from Latin via French; in its original form, it means “someone who really loves doing something.”
That’s a good thing, a powerful thing. Perhaps the best thing.
Professional, but at what price?
Here at The Motley Fool, we believe in the amateur investor. We’re into investing because we enjoy it. We love the challenge of ferreting out winning investing ideas, and we love the freedom that comes from controlling our own finances, rather than trusting the job to a professional: someone who takes our money but whose true incentives may lie elsewhere.
As investing gurus like Peter Lynch, John Bogle, Warren Buffett, and others have explained, too many of Wall Street’s professionals are conflicted, putting quick bucks and more clients ahead of serving those clients’ best interests. Sure, these guys are professionals, but that just means they’re interested in making money — and not necessarily for you.
The amateur edge
Even if you find a perfectly honest asset manager (and there are some out there), it’s important to remember this: We amateurs stand a good chance of beating the professionals. It’s not because we’re smarter, or faster, or even because we sport such an impressive summertime physique (why, thank you — I have been working out).
It’s because:
- We’re smaller. Remember when Buffett bragged that he could make 50% returns per year? The catch was that he’d have to manage $1 million, because smaller amounts of money enable us amateurs to invest in small companies the professionals can’t touch.
- We’re independent. Woe unto the Wall Street professional trying to buy put-upon apparel maker Under Armour (NYSE: UA) these days, instead of plowing into pricey-but-fashionable commodity stocks. As independent amateurs, we don’t have to take part in Wall Street’s stock popularity contests.
- We’re patient. We amateurs don’t need to worry about showing a gain next quarter in order to keep our “top trader” parking space. We’re free to buy what looks cheap and hold it for the long term, while the poor professionals have to wait until someone sounds the market “all clear,” something that only happens after stocks have made substantial returns.
