Dual Portfolio Management: DIY and Bundle Investing

Our resident retail Chief Investment Officer Shaun Krom has some thoughts about DIY vs managed investing – can the two be friends? Of course as manager of a number of EasyAssetManagement bundles he is biased, but his insights could be super useful in helping you decide how you want to put together your own portfolio. Here are his thoughts:

EasyEquities was established to empower investors to take ownership of their own investment decisions based on their personal risk/return objectives. There isn’t just one way to do that. In fact these days people are combining all kinds of methods to build their portfolio including new innovations like AI and robo investing as well as the more traditional passive paths like investing in unit trusts or exchange traded funds.

Having all of these options available means building your own portfolio can be a truly immersive and personalized experience. You can essentially pick, from a whole smorgasbord of products and methodologies, the things that align with you the most in the quantities that feel right.

One of those options is the ability to invest in managed portfolios. On EasyEquities we call those: bundles. This gives anyone access to professional managers who create and manage portfolios based on different strategies. You invest with as much as you want to spend, and you have full transparency of your investments.

A lot of people think of DIY and managed investing as an either-or decision. While both approaches offer potential advantages, a compelling strategy lies in combining the two - i.e. having a portion of your overall portfolio managed by professionals while simultaneously engaging in self-directed investing.

Do-It-Yourself: Taking Control of Your Financial Future

A DIY approach to investing, where you can choose and invest in stocks and actively manage your own investments, is empowering. This approach allows you to express your personal investment insights, conduct thorough research, and take ownership of your financial future.

Peter Lynch, who is renowned as one of the world’s most successful investment managers (growing Magellan Fund from as little as $20 million 1977 to over $10 billion in 1990 from a combination of returns and deposits) believes strongly in the ability of individual investors to use common sense: “invest in what you know”. He believes this can lead to outperformance.

Potential advantages:

• Autonomy and personalization
  Doing things yourself allows for complete control over investment decisions, allowing for alignment with your unique financial goals, risk tolerance, and investment philosophies.
  
  
• Invest in what you know
  Investing in companies and industries you know and understand (be that through fundamental or quantitative research, or maybe even just day to day life experience) can give you some level of surety. Having a good understanding of what is in your portfolio sometimes means you are more able to ride out volatility than if you were invested in a portfolio that you weren’t in control of, nor had sight of the holdings, and thus had less confidence in. This can be the case with traditional asset management.
  
  
• Cost effectiveness
  Investing DIY eliminates the fees of an asset manager, which can eat into your returns over time.
  
  
• A sense of ownership and enhanced financial acumen
  The exercise of putting together your own portfolio encourages a deeper understanding of financial concepts and market dynamics. This may allow for more informed investment decisions over time.

Potential disadvantages:

• Time Commitment and Effort
  The DIY route requires that you set aside time for research, analysis, and portfolio management.
  
  
• Emotional vulnerability
  Investing can be volatile and can lead to too frequent portfolio check ins, over-trading and thus being led by day-to-day fluctuations and extreme emotions of fear and greed - all of which can lead to impulsive decisions.
  
  
• Knowledge and experience gap
  Lacking the in-depth knowledge and experience of professionals can lead to suboptimal investment choices.
  
  
• Limited access to sophisticated tools
  Not everyone has access to advanced investment tools and resources utilized by professional advisors. EasyAssetManagement, the team who manages many of the bundles available on EasyEquities, has tools to see how a portfolio will most likely react to a 50bps change of interest rates or a September 11 type of event, as an example.
  
  
• Tunnel vision
  DIY investors often concentrate on individual stock positions and spend less time analysing how these positions impact the portfolio as a whole.

The Expertise of Portfolio Management

Entrusting your investment decisions to experienced professionals can combat some of the potential disadvantages mentioned above. It relieves you of the time commitment and emotional burden associated with active management. The bundles available on EasyEquities are also transparent; allowing you to see every holding in the portfolio and what percentage that holding is as a part of your total portfolio.

EasyAssetManagement takes a systematic approach to investing that exploits the relationships between certain stock characteristics and their future performance. What this means is that the team assess each individual stock not only against itself but against all other stocks in the market. We do this by comparing its relative value, quality, growth, and stability characteristics.

We look for companies that show value by identifying undervalued stocks: those trading below their intrinsic worth. Quality investing prioritizes companies with strong financial fundamentals, such as high inherent profitability and stability over market cycles. Momentum investing focuses on stocks that have exhibited consistent price appreciation in recent periods.

We combine all of the shares that we have identified using those techniques into a single portfolio, thus capturing the benefits of diversification across different investment styles and mitigating the idiosyncratic risks associated with individual factors.

We then further stress test portfolios to assess how stocks respond to different market conditions – for example, we have the technology to simulate the likely outcome if the Rand depreciates x% or oil rises y%, etc. This allows us to assess its resilience and identify potential weaknesses.

The Synergy of Dual Portfolio Management

You can now see that both do-it-yourself and bundle investing have a place and can offer different kinds of value to investors. The real strength though comes in their alignment when they are used together in a synergistic way. Peter Lynch, who believes you have the opportunity to outperform by investing in companies you know, also encourages people to seek professional guidance when going outside their expertise and/or to ensure that they have a portfolio that is risk managed around their needs.

Duel portfolio management offers a compelling solution for you to optimize investment outcomes by harnessing both professional management and your own investment convictions.

Potential advantages:

• Invest with more conviction
  When you invest in both a bundle and your own stocks, you can invest with more conviction in a few stocks you know, and have a high allocation to those stocks, with the peace of mind that you have a bundle as well which is more diversified and encompasses a broader spectrum of factors. i.e. you can be concentrated in a specific stock, a specific sector, or a specific style, say growth companies.
• Keeping long-term perspective
  The presence of a managed bundle alleviates the emotional burden of self-directed investing which can result in you checking in on your investments too frequently. This leads to maintaining a more long-term outlook and prevents you from over trading and taking on the expenses that go with that.
• The potential for increased returns
  Combining two different approaches could reduce your overall risk exposure and enhance the resilience of your investment strategy.
• Allows you to tailor your portfolio
  Based on your individual preferences, you can balance professional guidance with your own investment style.