SUCCESSFUL INVESTING in the stock market calls for specialised knowledge and skill.
Unless you are outright gambling on the success of the company, you will need to be able to make sense out of the financial statements of the company. Even when you are qualified in the field, your knowledge of finance and accounting will be tested.
Furthermore, the financial statements represent a mathematical model which does not fully reflect and report on other pertinent factors. For instance, what can you gather about the quality, competence and experience of the management team, and the quality and life of the fixed assets from the annual report?
A mutual fund company offers the shareholders the benefit of share ownership with a professional fund manager. The fund manager’s responsibility is to keep abreast of what is happening in the stock market and the business world in order to make these kinds of assessments.
A mutual fund company, guided by its fund manager, purchases shares in companies with a view to maximising the return to the shareholders of the mutual fund while diversifying the investment risks.
The mutual fund investment tends to provide the investor with good protection of his investment. It leaves the investment decisions to the professionals and you, the investor, can generally count on a good return in the long term.
A professional accountant may have some understanding of “buying low and selling high”, and about “bear and bull markets”. Yet, no matter how he tries to grasp all of the investment jargon, he may never seem able to work out a successful rule of thumb for your investment. He may actually end up buying low and selling lower.
Every investor also needs skill in assessing the particular idiosyncrasies of the industry the company is in. Then, too, each industry has its economic cycles. And the overall local economy is responsive to economic shocks in major international markets.
Then, there are those of us who just do not know enough to even consider monitoring an investment in shares. Before we start we seek out an investment adviser.
The problem with an adviser is that he cannot be held liable for losses you may eventually sustain if the advice given could be considered reasonable in the circumstances. Ultimately, you will be well advised but with no guarantee of any return.
Besides not knowing enough, you may also not even care about learning about investment. It just is not worth the bother. Successful investing in the shares of individual companies is a hard task. The mutual fund approach offers an attractive option to balancing the risks and rewards of share ownership.
A mutual fund is a pool of money established from many investors which is used to purchase a range of investments. A mutual fund has professional investment management.
With a large pool of funds, it’s possible to have professional managers and support staff to manage the investment at a relatively minimal cost compared to the size of the overall investment pool.
The investor will be relying on the investment expertise and track record of the fund manager.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. Email: LouiseFairsave @nationnews.com
This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.