Why Self-Directed Investors Can Massively Outperform Professional Money Managers (part 1)
Over the past couple of weeks, I’ve revealed to you how I learned to invest (see part one and part two). Now I wish to address a topic that often comes up in discussions about investing. The person I’m talking with often asks, “Why do you think you can do better than a full-time, professional money manager with his or her team of analysts?” In this article, I’ll answer that question.
Nobody is watching me
Warren Buffet, once the (self-made) richest person in the world, has compared investing to batting in baseball. As the crowd watches intently, the batter has to decide which pitches to hit and which to let through. I barely understand baseball, but I know that the umpire calls a strike if the batter swings and misses, hits a foul ball, or doesn’t swing at a ball that is in the strike zone. Once the umpire hands the batter three strikes, she or he is out, losing the opportunity to score points for the team.
In baseball many great batters have proven that it pays to wait for the “fat pitches,” the pitches that enable superior hits and therefore produce more points. This is a favorable approach even in spite of the risk of being called out in three strikes.
