Disadvantages to Mutual Fund Investing.
Disadvantages to Mutual Fund Investing.
Individual investors can and many do, consistently beat the "professionals" in the stock market because they do not face the same heavy restrictions these much regulated portfolio managers do.
More on beating the volatile SET index.
Did you ever read Peter Lynch's book "One Up on Wall Street"? He is one of the most successful and best known fund managers in the US. His thesis is that individual investors can (and many do) consistently beat the "pros" in the stock market because they do not face the same heavy restrictions as regulated portfolio managers. Example: many portfolio managers are restricted to investing only in stocks that have a certain minimum market capitalisation or liquidity, as measured by average daily stock trading volumes.
Mr. Lynch would argue that it is this very reason that in Thailand real and unusual opportunities are available to individual stock investors - it is not that they are not excellent opportunities for funds - it is just that they surely do not meet the rigid requirements of a mutual fund investment committee. This institutional dilemma is especially and acutely so present, in emerging markets like Thailand.
This is the same theme in different words I have been writing on for over 2 years at my web page. What I did not know for a long time, is that the strongest voice in the fund industry says it so himself! Without a doubt, in emerging markets there are far better values to be found in companies with smaller market capitalisation and lower liquidity. As for sure, there's a lot more keen competition buying large cap./high liquidity situations. Probably far too much so.
Too many articles have been written on the advantages in owning funds as opposed to buying shares directly; I here will keep showing you the real and superior advantages - and how to implement this- in directly owning these Thai shares or, "diamonds in the rough" as I have been known to call them.
Another writer, Richard Thaler, a University of Chicago economist, has a little to say about this, as applied to business situations, in a chapter in his book correctly called: "Winner's Curse". He quotes several studies by psychologists and also a paper written by some individuals working for ARCO, the oil company, about Gulf of Mexico leases sales. When you have a lot of people bidding for an asset, the person who's going to buy it is going to be the most optimistic. And so he's or she likely to overpay. Obviously, when you have virtually no competition, as is the case with a few small-cap Asian stocks, you can buy more cheaply.
And...there is not much competition at all in buying the most undervalued stocks in Thailand!
The smaller and mid sized shares on the SET is one area in which an individual investor can find an edge as well as diversity - a place where small investors have a distinct advantage over large institutions! Many, many studies have shown that OVER TIME value stocks outperform growth stocks and many studies have shown that excess liquidity often drives "themes" to excessive, even ridiculous valuations that will eventually come back or crash back down.
Best Regards,
Paul A. Renaud.
Value Holdings (Thailand) Co., Ltd
