Having seen so many amateurs and professionals investing in equities (not talking about traders), here are some big differences.
1. Averaging means ignoring market information: Many people average in a single scrip and this can be dangerous. Examples like Silverline, Shaan Interval, Idbi bank, Moschip, Crest Animation, ..are just too many to be ignored. Yes you thought it was a good company, but YOU are ignoring all the data saying …’hey this company is bad’ or failing.
2. Professional traders – i know many of them – have a fantastic amount of discipline. I know a chartist who has NO MONEY INVESTED IN THE MARKETS – he says even holding a small position creates bias. He invests only in mutual funds (through his brother, on a SIP basis) and HAS NO CLUE about the portfolio of the fund scheme. The last time I met him he had earned Rs. 15L as fees from a stock broker for giving calls on the broader indices. Not bad for a months job, eh?
3. Professional Investors invest ONLY in 20-30 companies ALL THEIR LIVES: Unless of course they are so big that they run the business of asset management.
4. Good professional investors (and I do not mean fund managers, but people who make a living with their investing and trading skills) have a fantastic ability to cut the noise, straight to the news. I know of investors who will go to an annual general meeting and not ask any questions – but come back and buy more or sell. One such investor knows more about a company than its CFO – the details having come from a competitor.
5. Professional Investors commission research reports: For them the mass media is a distraction, so mass media is just to know where is the hysteria. In fact there is a professional investor who uses the mass hysteria to get RID of some of his shares, but NEVER buy the share 🙁
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