THIS MONTH Marcus Padley
A real labour of love
There are sound reasons why people like to manage their own finances
W
hen I retire, you would imagine
that I – as a fund manager, stock-
market newsletter writer, finan-
cial planning business owner, financial
educator and long-time stockbroker – will
relish managing my own retirement funds
in perpetuity.
But when I do retire, in, say, 10 years,
assuming I have hit the number I currently
estimate I need in retirement funds, the
truth is that, like a retiring mechanic, the
last thing I will probably want to do when
I turn my mind to more leisurely pursuits
is to fix my own car. I probably will, as do
many people, but why do they take on the
task of managing their own retirement
funds, especially when they don’t have the
history, as I do, of experience in that indus-
try. Why would you manage your own
equity portfolio? Let me tell you.
Because they can. Individual investors
have unfettered access to the stockmarket.
It didn’t used to be this way. Before the
early 1990s, everybody had to deal through
a full-service broker. It was all telephones
and 1% brokerage. But the internet changed
everything. Through technology and the
availability of research and opinion, individ-
uals have the ability, if they have the time and
interest, to take control of their finances at a
fraction of the cost. People manage their own
investments because they can; it is an option
available to every citizen, in every kitchen, in
every home in Australia.
Trust. It is an unfortunate fact of the
finance industry that it has lost the trust of
the populace. The banking royal commis-
sion has done a good job of killing the indus-
try without providing anything to fill the
void. Many investors understandably now
choose to fill that void themselves.
If there is a cycle of trust and persecu-
tion in financial advice, we are hopefully
close to the bottom of one cycle and at the
peak of the other. But while the mistrust
remains, many investors feel that the only
Marcus Padley is the author of the daily
stockmarket newsletter Marcus Today.
For a free trial of the Marcus Today
newsletter, go to marcustoday.com.au.person they want going anywhere near
their money is themselves. That’s why they
manage their own portfolios because, win
or lose, they prefer to be the person respon-
sible. They can handle their own failures,
but not the failure of others.
The chance to do better than
average. If you invest through one of the
big superannuation or industry funds you
can pretty much guarantee the average
return from every asset class. For some
people that prospect is too dull.
You might think the big funds have smart
stock pickers trying to beat the average. But
the truth is that they have so much money
under management that they simply cannot
materially outperform the average, and rath-
er than attempt it they accept it and end up
more concerned with not underperforming
than performing. If you look at the data
(see Databank, page 87), you will see that
the performance of the top 20 MySuper
funds over the past five years ranges from
6.6% to 9% a year. They are all pretty much
doing the same thing, giving you access to
the average return.
These multibillion-dollar funds (Austral-
ianSuper has over $100 billion under man-
agement) hold so many stocks in so many
asset classes that this is pretty much all they
are capable of: administering your access to
the average return rather than genuinely
attempting to outperform.
Most individual investors will hold less
than 20 stocks and their returns will be any-
thing but average, but they do at least have
a chance of making above-average returns.
When you are behind the eight-ball, you
need this chance. Managing your own share
portfolio is a more hopeful prospect; you are
not resigned to the average. Some investors
need that hope.
The ability to exclude stocks. We
have run a top 50 portfolio in the Marcus
To d a y newsletter since 2011. The invest-
ment process involves taking the top 50stocks and, rather than picking the best,
we exclude the worst. This portfolio will
outperform because of the stocks we don’t
hold rather than the stocks we hold. Indi-
vidual investors will tell you that this is one
of the major reasons they do it themselves,
because an index includes all stocks, so by
simply excluding stocks they reckon they
can do better, and I’m sure many do.
As a social activity. The stockmarket
offers the medium to connect with other peo-
ple. This is something that has become a way
of life, a necessity even, for some investors.
Organisations such as the Australian
Investors Association, the Australian
Shareholders’ Association and the Aus-
tralian Technical Analysts Association
(you don’t have to be a technical analyst)
provide not-for-profit opportunities to trav-
el to conferences and events, gather with
like-minded investors, share ideas, make
friends and network with other members.
It can be worth it just for that.
Because they love it. The stockmar-
ket is an intellectual pursuit, a learning
experience, and for many it becomes a
hobby. As one investor once put it: “When
the only organ that still pumps blood is the
brain, the stockmarket is as close to sex as
I can get.” If you come at the stockmarket
out of necessity, if you don’t enjoy it, if you
don’t get passionate about it, you are going
to burn time and create stress and you are
more than likely going to stuff it all up.
The only people who should manage
their own portfolio are those who want
to do it, see it as an intellectual activity,
have passion and enjoy the whole process,
whatever the outcome. For some investors
the stockmarket is everything; it occupies
every vacant moment, because they love it.