Buying Shares Instead Of A Tracker.

It occurs to me I have not touched on the reasons that I have decided to buy individual shares instead of buying into a tracker fund.

A tracker fund basically buys a certain amount of shares in every company that defines the group it tracks, hence their name trackers track things. For instance you get trackers that track the FTSE 100, they buy shares in every company and rely on the ones doing well to do better than those that don't do so well.

This actually works quite well, historically the FTSE 100 has grown and trackers have tracked this growth. I recall a figure of about 10% averaged growth per year over 30 years or something like that. Their return is slightly lower then the FTSE growth as the fund takes a percentage of the capital each year as a fee. Fair enough they need to make money and you can't begrudge them that. Find a tracker with low fees is important and some are quite low priced.

The nice thing about them is they are easy to buy and easy to forget about save in the knowledge that they will return close to market results each and every year. Low cost tracker funds also beat most actively managed funds when measured over an extended period. Think 10 to 15 years.

At this point I have nearly convinced myself to put money into them. So why don't I? Well it is a close thing.

Lets take a look at myself. If I am honest I have very limited time for investing, perhaps a few hours a week, that in itself indicates buy a tracker and use these few hours to develop android apps, write blog posts, run/exercise, cook healthy food, play with the children and in general enjoy life. There is a lot to do and a limited amount of time.

As I mentioned above most investors get beat by a tracker over a long enough period of time and this it in part due to fees. I won't be charging fees and hopefully be able to utilise strategies that will let me compete with trackers - That is me being arrogant  and saying I can beat trackers and professional investors. I know there is not a hope in hell but it will be fun trying.

And there is the key reason why I am investing in shares for the pleasure of doing so. The intellectual challenge of spotting good companies and buying into them. Trackers are mechanical and don't offer that sort of challenge. I see it as a game that is played out over a number of years.

Finally there is an theory about how to beat a tracker fund. the idea is quite simple with the essence of the idea being run your investments as a tracker fund but don't charge a fee. They charge a fee therefore you will get a better return. As most individual investors cannot afford to buy every share in the FTSE 100 a step further is attempt to identify the failing companies and remove them from you list to invest in. This reduces the number of investments and returns will be greater than a tracker fund. That is of course  based on the predicate they you can identify the under performing/failing companies and that is not always a given.

Ok this post is long enough. I think I have enough energy to do one more investing post about the strategy I intend to implement.