20 May Stocks Picking or Portfolio Management – Which Is More Difficult?
Last Saturday (16 May 15) we conducted the inaugural Personal Portfolio Management Course.
Prior to the course, Jon looked through the slides and commented that this is more difficult to understand even though categorised this as the level 2 of financial education while stock picking is at level 3. He said people would understand stocks but portfolio concepts are abstract. For example, we have to touch a little bit about efficient frontier of the Modern Portfolio Theory, and then caveat that the frontier shifts throughout the history of financial markets and hence, there is no perfect portfolio structure unless you can foresee the future. The more practical way is to design a well diversified investment portfolio and wade through economic uncertainty defensively. Wow, what a mouthful.
It is indeed more difficult to comprehend portfolio management concept than saying this company is worth this much and now it is selling at half price. However, can one really afford not to look at the portfolio returns when it contributes to his wealth? A person who solely invested in Japanese stocks for the past 20 years would not be a happy man!
As our quest to scope financial education, we established 3 levels of it which you can see from this Prezi:
If you cannot see the slides, you can head on to this link.
Despite the fear that it might be too complicated, we went on with the level 2 course. We created it in the first place because
- We found that most investors are too focused in one type of investment asset class. For e.g., an investor may only invest in properties while another only in stocks. The course is to expose them to other asset classes
- This means that most investors are generally vulnerable to changes in economic cycles that may cause their asset class to under-perform for years or even decades.
- We also noticed investors focused too much on expected returns and ignored their potential portfolio volatility. We want to use the course to highlight that the degree of volatility relates closely to their risk tolerance and ability to stay invested until they reap their expected returns.
- The aim would be to educate investors about the relations between economic cycles and asset classes, how uncertain the economy would be, and structuring a portfolio defensively as a prudent way to grow wealth.
We have collected the feedback and let’s review if the course has achieved its agenda.
31% of them openly declared the love of the financial card game, Wongamania – this should make the game designer, Xeo Lye, very happy. It was very obvious to us that Wongamania would be an excellent learning tool for the participants. Lo and behold, the reception of the game was excellent. There was even a suggestion to play an additional round of the game after lunch.
58% mentioned portfolio management keywords like ‘diversification’ and ‘rebalancing’ when they were asked the most important thing they have learnt – This was the main desired outcome of the course and we have hoped this percentage to be higher.
27% mentioned they have a better appreciation of Exchange Traded Funds (ETFs) – We didn’t intend to achieve this outcome but this came as a pleasant surprise. Low cost ETFs are the building blocks investment portfolios. They are less time consuming than picking the actual stocks, bonds, commodities, and they are cheaper than unit trusts. I guess most of them were able to take this point from the course.
So the conclusion I gathered was that stock picking is more exciting, easier to understand, but very hard to get it right. Portfolio management is difficult to understand and appreciate, even though it is relatively easier to get it right. People seek pleasure and avoid pain. Seeking pleasure in investing is a sure fire way to lose money. Now I understand why I often hear things like this, “How about investing in U.S. and Chinese stocks? Singapore stocks are boring as they don’t move.” Investing is not entertainment. If it is entertainment, you got to pay for it.
What do you think? Is portfolio management too difficult?