Do We Need Expensive Investment Advice To Beat The Market?

Last month, I read an article that said that banks are planning to charge clients up to US$2,500 per hour for an analyst’s time. That is an astronomical amount by any account. Having said that, I can understand why investors with deep pockets might be willing to pay insane amounts just for a few stock recommendations.

For instance, just a 1% boost to an investor’s $10 million portfolio can generate an additional $100,000 return, easily outstripping the amount they pay for the analyst’s time.

However, not everyone has such deep pockets. How can the everyday investor compete with the professionally managed money if he does not have access to expensive investment advice?

Astronomical fees may not be worth it

The first thing to note is that these astronomical analysts fees may not be worth so much.

Analysts in banks are paid to research on equities and give advice based on their earnings forecast and valuation models. Yet, in reality, analysts across the industry often disagree on the exact value of a company. Companies also often either fall short of consensus estimates or vice versa.

This is because analysts make predictions that are frequently off the mark. This is not to say that their research has come to nought, but the stock market and business world is such that short-term forecasts are often difficult to predict and even professionals can get it wrong.

Having said that, some analysts may have a better track record than others when it comes to predicting company performance and consequently can give better advice to investors.

How can ordinary investors outperform the big money?

Fortunately, for everyday investors, just because we do not have access to the elite professional advice does not mean we are bound to underperform the market. There are good websites and books available that are easily accessible to investors of all stripes.

Especially now, with the Internet and free stock screening tools available to investors, investing has never been easier for individual investors. There are also stock recommendation services that have a long and reliable track record of market-beating returns.

Furthermore, retail investors may have additional benefits due to their smaller portfolio size and wider investment opportunities available to them. For instance, investing in small-cap companies may not be an option for large portfolios, but the average investor may be able to find good investments in a small cap company that can improve his portfolio.

Another key advantage is that unlike professional money managers who may have short-term targets or quotas to hit, individual investors have time on their side. This means we can concentrate on the long-term returns of the portfolio, rather than make short-term trades which can be detrimental to our portfolio returns.

The Foolish bottom line

Investment advisors are highly sought after, especially for investors and companies with deep pockets. However, retail investors need not fret over not having access to this premium service.

There are numerous instances to show that retail investors can still outperform the professionals if these investors follow a prudent investment approach with a focus on the long-term.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.