Overview – Is Portfolio Management Something You’re Capable of Doing?
With more ways than ever to get involved in investing, new investors will soon find themselves asking a simple yet very important question: “when it comes to portfolio management, should I do it or leave it to someone else?”
It should go without saying that every investor has their own unique circumstances and that the answer to this question is not as black and white as most investors would believe. However, this is not to say that an answer cannot be arrived at.
Let me make it clear right now that ever since I started investing I have always managed my own portfolio. I have never availed the services of a fund manager, nor do I plan to in the future. Many of the articles here on ilucidy assume that the reader actively manages (or plans to actively manage) their own portfolio.
However, the question of whether you should manage your own portfolio is one that needs to be answered as soon as possible. The last thing an investor wants is to be indecisive – indecision leads to wasted time, money, and energy.
The Importance of Knowing Yourself
In the Why I Am a Value Investor article, I went over my reasoning as to why I adhere to value investing as my investment paradigm. The biggest reason I chose value investing is that its principles aligned almost perfectly with my own aptitudes and personality.
With the advent of cryptocurrency and high-frequency trading, value investing has lost much of its lustre, but I still choose to adhere to it because I know it suits me best.
An investor won’t stick with an investment paradigm for long if it fundamentally goes against who they are, but that’s to be expected. Sure, you can force someone to do something or to take a certain course of action, but if the compatibility simply isn’t there then it won’t take long for things to fall apart.
Put another way, the investor doesn’t choose the paradigm. Rather, the paradigm chooses the investor. This may sound cliché, but I assure you it’s not – there are paradigms/investing styles that will click with you immediately, and some that won’t.
If someone wants to be a value investor, but their aptitudes better align with day trading, then it won’t take very long for this person to lose interest in value investing. You can’t force someone to do something they don’t click with for very long.
The same idea applies to the question of portfolio management: to some people, managing their portfolio makes a lot of sense, whereas for others it would make more sense to have someone else manage their money.
Before attempting to answer the big question of whether to manage your own portfolio, an investor needs to do some introspection and really understand the sort of person they are. Only when one understands who they are can they hope to answer this big question.
First, we will look at some reasons why some investors, including myself, opt to manage their own funds.
Why Portfolio Management Is a Responsibility I Take On
I’ve observed that the biggest reason why I choose to manage my own portfolio is that I enjoy managing things myself. I believe in the philosophy of “if you want something done right, do it yourself.”
I’m the sort of person who is very hands-on with my personal affairs. I only ever delegate tasks if I absolutely need to, otherwise, I’m more than happy to do tasks myself.
Therefore, it comes as no surprise to me that I’m naturally drawn towards the choice of managing my own portfolio. By managing my own investments, the decision-making power rests solely with me, and that is exactly what I want. Whether my portfolio flourishes or flounders is completely up to me.
To some people, the idea of being the top decision-maker makes them nervous, but for others, such as myself, I love the feeling of control and stability I get when I know that I can make the final call.
Another reason why I choose to manage my own portfolio is that I genuinely enjoy the work of performing investment analysis. This may sound crazy to some people, but if you’re really passionate about something then you’re probably familiar with this feeling too.
What seems like hard work in the eyes of others may be very enjoyable to the person performing that action. Weightlifting is seen as a tiring and physically demanding activity, but many people, including myself, love the feeling they get when pushing their physical limits. Some people may view gardening as laborious, but for those who love to work with their hands and enjoy being in the outdoors, gardening may be quite enjoyable for them.
In The Intelligent Investor Revised Edition, some of the book’s commentators talk about how, despite having no economic need to keep working as a fund manager/institutional investor, they continue to do so. They enjoy managing portfolios and making investment decisions so much that they go to work every day not to earn money, but to do something they genuinely enjoy doing – getting paid is simply a bonus.
In Berkshire Hathway’s Annual Reports, Warren Buffett has repeatedly brought up that many of the managers who oversee his companies are already wealthy and have no financial reason to keep working. However, they are not motivated by money, and freely decide to keep working because they enjoy portfolio management.
Now, I’m not saying that investing is simply a game for me. My goal, like any other investor, is to make money from my investments, I’m not going to deny that. However, I love analyzing companies, reading annual reports, and making my own decisions – managing my own portfolio allows me to do this.
Finally, I choose to manage my own portfolio because I am confident in my ability to make decisions – I am not the type of person who second-guesses their decisions.
Once I have made up my mind to take a certain course of action, I will follow through with it. The only reason I will back off from a decision is if there are very compelling reasons not to proceed. There are a lot of traits I dislike in people, and one of them is indecision.
By taking portfolio management into your own hands, you can ask others for advice and guidance, but at the end of the day, you make the final call. If you are firm with your decisions and rarely second-guess yourself, then managing your own portfolio may make sense for you.
Some Reasons to Delegate Portfolio Management
Similarly, not everyone may want to or be interested in managing their own portfolio, and that is totally fine as well. There’s no point trying to convince someone to manage their own money if they refuse.
Time and time again, the major reason I see as to why people decide to delegate their portfolio management is because they aren’t confident when it comes to keeping their cool.
I’ve repeatedly brought up that investors must learn to keep their emotions at bay, but that is much easier said than done. Not everyone can withstand the pressure to stand their ground when the world is telling them to budge, and that’s totally understandable.
I’m not going to pretend that everyone can keep their cool at all times – all of us handle our emotions differently. If, despite your best efforts, you struggle to keep your emotions at bay, then leaving your portfolio in the hands of someone else may be the most appropriate course of action.
Another reason I can see why people may want to choose to delegate their portfolio is that they aren’t comfortable being the final decision-maker.
I mentioned earlier that I love the feeling I get of being the sole decision-maker when it comes to my investments, but that doesn’t mean every decision I make is easy. Naturally, there’s some stress involved knowing that your decisions may make or break your portfolio. If you feel you can’t handle this sort of stress, then letting someone else call the shots would probably be best.
You Already Have the Answer, You Just Need to Look
If you are under the impression that I believe managing your own portfolio is superior to having someone else manage it, then you are mistaken.
I do not believe that one approach is superior to the other. The point I’m trying to make is that some investors are more attuned to a certain approach and choosing to go against something that feels natural to you will only end poorly.
In the previous section I mentioned that I choose to manage my portfolio because I like having control over the things I do, I enjoy the investment analysis process, and I’m confident in my ability to make decisions.
This is simply who I am, and so my choice to manage my own portfolio came naturally to me. That is why I stress the importance of knowing yourself: if you don’t know what sort of aptitudes or traits you have, deciding whether to manage your portfolio or not becomes a much more difficult question to answer.
Whether you decide to manage your own portfolio or have someone else do it, understand that one approach will likely work better for you than the other. You need to take the time to know yourself and discern which approach, given your aptitudes and traits, aligns best with you.
Wrapping Up
Choosing whether to manage your portfolio or have someone do it for you is a very simple yet important question all investors will need to answer.
Answering this question requires an investor to understand who exactly they are, meaning an investor will need to do a bit of reflection before attempting to answer this question.
Just as investors are naturally drawn to certain investment paradigms, so too are they naturally drawn to managing their own portfolio or letting someone else take care of it.
Choosing to manage your own portfolio or having someone else do it both have their pros and cons, so no approach is necessarily “superior” to the other. However, many investors quickly find out that one approach is simply a better fit for them than the other.
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