Active investing is hard

Market returns are usually defined by the benchmarks e.g. STI index returns. Active investors should not be satisfied with achieving market returns. Significant efforts are undertaken to pick stocks and customize a portfolio. This must be compensated by above market returns. Otherwise, isn't the time spent unwarranted?

How do we pick stocks? This is as simple as entering the stock code and clicking the buy button. Or it can be as hard as doing balance sheet analysis, profitability forecasts, valuation calculations, industry research, peer comparisons, studying of historical and forward trends. Each topic by itself may require some significant technical knowledge and is not easily available for the average investor.

However, all the effort incurred to determine that a stock is worth a place in our portfolio doesn't guarantee that it will outperform the market. Unsystematic risk is always present. The industry might be hit by black swan event. An obvious example during the current pandemic is airline companies being blasted by the air travel declines. No one could have seen this coming. Even if one has the necessary foresight, he or she might not react in time to match the speed of the unfolding events.

And of course, the next second part of the story is the subsequent recovery of these reopening stocks, even before we go back to the post COVID normal. Did you get in in time to take part in the current market rally? STI is back to 3200 levels in a blink of an eye. I'm caught by surprise. Were you?

It's a topic which I'm struggling myself, whether to be a stock picker or a passive investor. When starting out years ago, the way to "make money" is to pick stocks. I imagine having the skill to choose counters that doubles or triples in value. It seems easy. However, after years of spotty records, I'm underperforming the market index significantly. It's no longer about making big money because it is really hard to avoid any losses. Investment is much more than clicking the mouse button.

After much humbling by the markets, I should be changing my mindset, especially as I'm now older.


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