The aware do-it-yourself
Usually when you invest your savings, you can choos one the following options:
1. Ask for advice to your bank or your financial advisor in exchange for a commission on the products that they sell.
2. Ask for advice to your financial advisor in exchange for a fee (fee-only), performing the steps he or she recommends throrugh a bank in ‘execution only’ mode.
3. Choose among the financial instruments in which to invest by yourself, executing orders through a bank (typically online, in ‘execution only’ mode).
Each solution has its pros and cons. Most people feel the need of an advisor, and then choose between options 1) and 2). Markets are complex and the time and mental effort they devote to their savings are perceived to be excessive in relation to their availability and skills. In essence, hundreds of millions of investors around the world instinctively reject the do-it-yourself option: they are willing to pay commission or fees, in order to delegate to professional all the choices about their wealth, whether small or large. Options 1) and 2) seem to be the default solutions around the world, even though there are a few drawbacks to consider.
First, the value that professionals can add in the financial advisory they provide is not evenly distributed among them, and private investors cannot make a good ex-ante estimate of it.
Second, the complexity and the low predictability of financial markets are such as to weaken the the so-called "experts"’ role. Wealth management (your own or someone else’s) differs significantly from other human activities where an objectively remarkable difference in the results obtained between those who are skilled and those who are not, does exist. If any of you, after taking a few tennis lessons, decided to challenge Rafael Nadal or Roger Federer on the field, would have a chance in a million to beat them. If you would like to create a copy of Michelangelo's Pietà with a hammer and chisel, you could not do a better job compared to a professional sculptor’s. If you drove a tanker in Genoa harbour, you would almost certainly cause a disaster, unlike professionals who have done this job for decades.
In financial markets the situation is completely different and several studies show that, in the stock market context, a blindfolded monkey has a surprisingly high probability of beating the professional managers in the selection of the most profitable investments during a given period of time. In the eight editions of “Caccia al Toro”, the stock picking contest among professional fund managers published every Saturday on Il Sole-24 Ore, the blindfolded monkey (random Monte Carlo portfolio) has prevailed over competitors in 47% of attempts to select winning stocks in the Euro Stoxx index.
Third, except in the case of the fee-only financial advisors, delegating to professionals the management of your investments implies the acceptance of a conflict of interest in which they operate, while taking into account regulatory constraints that aim to eliminate its effects.
The do-it-yourself solution can legitimately appeal to many of you, but it requires a good financial education and considerable, continuous self-discipline to be optimally pursued. The unaware or naively greedy do-it-yourself has done huge damages to Italian investors’ pockets; for example, to those who chose by themselves to invest the lion's share of their portfolio in Argentina, Cirio, Parmalat or Greek bonds.
YouInvest programme allows you to work alone, providing you with the required education and self-discipline.