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There are a number of issues with direct share portfolios which contribute to sub-par investment decisions and make it difficult for investors to know whether their portfolios are performing well.
Nobody knows how well direct share portfolios are performing, both as a whole class and individually. Unlike managed funds, there aren't scores of analysts ranking individual share portfolios, because other investors can't buy into them, so there's no market for performance data about individual share portfolios.
With a PortfoliOK review, you’ll know exactly how your portfolio is performing. We replicate every share transaction, including dividends, to tell you how well you have done compared to the market.
Our intention is not to stop you investing in direct shares but to present facts to assist you in your decision making process.
Considering how all investments can be measured in dollars and cents, it is an interesting fact that there is little available meaningful data on how good or bad the stock broking industry is as a whole, or how one broking house or broker is better or worse than another.
Stockbrokers vary by age, experience and preference for various investments and risk, consequently their approach to share portfolios can vary greatly, as can the relative performance of the portfolios they manage or provide advice for.
The same can be said for non-professional investors who take their own advice on direct share investments.
In our experience, most direct share investors are getting average returns below market. Furthermore, they are unaware of this under-performance.
Generally reports provided to clients by their brokers tend not to give a percentage return, including dividends, and tend not to compare to Index. Ask your broker – does he or she even know how your portfolio has performed relative to a benchmark?
Some brokers have an emotional attachment to certain shares (Dad used to work at that company) or share categories (Uncle Joe always said you can never own too many resources). That's not surprising - people are human.
What may be surprising is how costly emotion-driven investment decisions can be.
Since stockbrokers are usually paid on commission, they are motivated to sell or increase their client's position in a particular stock to earn themselves more money, even if the best decision for the client is to hold at the current exposure.
Direct share investment decisions are often based on heavily summarised information, and can be unduly influenced by momentum and fever.
How often a client's position is reviewed is often determined by how often the client calls the advisor, or vice versa.
When a stockbroker has a hot tip, he calls his biggest clients first. If you're not near the top of his list, the opportunity may have evaporated by the time he contacts you.
The rules of accounting standards do not necessarily assist the investing process with a focus on legal compliance not for financial analysis. Corporate management often keep their cards close to their chest and only disclose legally necessary information.
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