Do You Have What It Takes to Manage Your Stock Portfolio?
According to Mad Money’s Jim Cramer, “mutual fund managers don’t get paid for delivering performance,” they collect a fee from investors regardless of the amount of money they make for their client”. This means that they won’t really care about how well you fare in the investment stakes as long as you bring them lots of money. This is why people are advised to manage their individual stock portfolio.
The ability to do this, however, rides on various factors.
Your intellectual framework for investing
If you were to list down which investment principle you will use to operate or the characteristics of the stocks you want to buy, can you write them down quickly and easily? If you still need time to think or that you have no idea at all, managing your own investment might not be a great idea.
Your basic understanding of business
Since you will be buying company stocks, you should at least have a good understanding of the fundamentals of a particular business. It’s important that you know how an organization makes money, so you can better protect your investment.
Your capacity to value cash flow
It is important that you can come up with an independent, reasonable valuation, so you don’t end up being lured by unethical promoters or high-priced initial offerings. To really test your ability to value cash flow, find out if you understand how a business is worth based on the cash flow it generates from a certain period until doomsday. If you can’t seem to put two and two together, you best reconsider about choosing individual investments.
Your capacity to stay emotionally detached
Stock investments are volatile and unpredictable. If you panic every time the prices drop, you probably won’t stay sane for very long. Until you can handle watching your holdings fall by fifty percent without tearing your hair out, it is best to manage your stocks with professional help.