| Proponents of pooled funds argue that there is a | | | | Professional investors also gain enormous advantages |
| great uncertainty on the stock market, and that it is | | | | by exercising economies of scale. This occurs in |
| dangerous for the private investor to play there, as | | | | various aspects of their operations, including |
| they get prone to high losses and costs. Although | | | | R&D (research and development), administration |
| there is a grain of truth in this, the argument for | | | | and transaction costs. The availability of greater |
| holding an investment in a unit trust or investment | | | | financial resources to the professionals enables them |
| trust is just as good as that for holding equities. In | | | | to employ the services of experts to research into |
| the long term, returns from holding equities have | | | | detail the companies, products, and services they |
| outstripped returns from safer investments such as | | | | want to invest in. A lot of cost is saved, since one |
| corporate bonds, gilts and deposits. In spite of these | | | | expert can consider several companies, products and |
| gains, the fact still remains that professional investors | | | | services on the same project. This is a benefit the |
| have some advantages over private investors. The | | | | private investor cannot dream of. There are |
| advantages enjoyed by professionals span three | | | | impressive cost savings when it comes to paying |
| main areas, namely: | | | | fees and commissions on transactions, since a lot of |
| (i) information gap | | | | the securities will be considered in bulk. |
| (ii) economies of scale and | | | | In spite of the above-mentioned advantages, one |
| (iii) expertise, and these shall be considered in turn. | | | | area in which the private investor beats the |
| Professional investors, fund managers to be specific, | | | | professional is 'flexibility'. The private investor only |
| have become increasingly powerful as the strength | | | | have to invest in a stock that will provide the desired |
| of institutional investors have grown over recent | | | | return and does not have to invest just to keep up |
| years. In the course of using their powers to instil | | | | with the market, like the professional. Fund managers |
| goal congruence in corporate governance, | | | | also have to operate within the confines of the |
| professionals have had more access to insider | | | | styles prescribed by their trusts, whereas the private |
| information from companies than the private investor. | | | | investor can employ a 'free' style in investment. |
| Directors are quick to part with such information, if a | | | | Indeed, to his own detriment, he can sell all the |
| denial will cost them their prestigious jobs. It is | | | | shares in his portfolio, go and bask in the warm |
| claimed that when the private investor buys a share | | | | sunshine of Spain, and come back to invest |
| in a company, he has bought ownership, implying | | | | whenever he wants; such flexibility is totally out of |
| access to information to help him to vote sensibly | | | | the reach of the professional. As an aside, with the |
| when making corporate decisions, but this is not | | | | application of due care and technique it is possible to |
| what happens on the field. This disparity in | | | | select a share that will provide long-term returns, but |
| information makes the private investor toil to no avail | | | | there is no method for choosing a good fund |
| to identify a winner, as any benefits inherent in such | | | | manager. |
| shares must have already being factored into the | | | | It is true that there are fluctuations in the stock |
| price by the time they are discovered. | | | | market and can lead to losses for the private |
| Private investors have to make do with usually | | | | investor. Equally, there are a lot of fund managers |
| adulterated media information on investment, | | | | who make losses and fail to achieve their targeted |
| whereas the professionals have sophisticated | | | | returns. Either side of the coin has its own ups and |
| analytical machines and tools, readily at their disposal, | | | | downs, private investor or professional investor. It is |
| on the back of the strength of their pooled funds. As | | | | perhaps wise to combine the two in a portfolio, to |
| if this is not enough, there is as well the expertise | | | | even out the negatives with the positives. |
| they can flaunt. | | | | |