I am a DIY investor and I enjoy it because finance, investing, business and economy is interesting to me. In fact, if someone asked me what I would be if I was not a software developer (which is my main profession today), I would say I would be a research analyst.
My approach is a combination of DIY + leaving to experts. I do a combination of mutual funds and stock picking.
I invest through mutual funds because there are fund houses that I trust for one reason or another. These include PPFAS and Kotak MF. AMC’s have their limitations, but they will aim to beat the index and my hope is that they will. In theory they will have more resources and information at their disposal than I will ever have. If someday I loose the trust, I would go 100% direct.
I invest in stocks directly not with the aim to outperform the mutual fund or any index. I do it so that I can learn about the companies and see if I am right or wrong with my hypothesis.
There are three reasons why I think I have an edge as compared to an AMC:
- I have negligible capital (in the grand scheme of things), so I can buy any stock regardless of it’s market cap and not influence it’s price. AMC’s cannot do this.
- I can wait out through years of underperformance as long as I believe in a certain company. An AMC would need to show profits every year or they will loose a share of their AUM. This puts pressure on the fund managers which I hope I do not have. Ideally they should sit tight, but that might not be the case.
- I get to learn the intricacies of individual companies when I own it’s stock. You could argue that I can do that even without buying a stock, but at least for me, I find that I am more invested (literally!) when I have “skin in the game”. I read up more on the stock if I own the stock.
As of right now, if I compare the XIRR of my equity mutual funds v/s stock picking, I am doing better than the mutual funds by 0.9%. Considering the size of my portfolio, this additional 0.9% is negligible amount and I could have made more money probably by investing that time in my main source of income. However, I feel like I am learning and I am feeling more and more confident about my skills today as compared to when I started.
I will give you a simple example. If I never invested directly, I would still not know how to read the annual report of a company or enjoy the well written books like Coffee Can Investing or The Unusual Billionaires. I love that I can see numbers on screener.in and know what they exactly mean.
I could be wrong, but I think many people invest directly because it’s exciting to do so. It gives you a sense of control over the outcome and you feel better either way because it was your call after all.