I remember seeing a book written by John Bogle (the founder of Vanguard) where he suggested “individual investors should buy mutual fund not stock”. I agree with some of his arguments, such as diversification. And I believe that’s also the fact in the US: where pension fund and university endowment fund invested in stocks, mostly through mutual funds. But I don’t agree with his conclusion.
Come back to China. Since the inception of Chinese stock market, invididual stock investors, or Gu Ming 股民 have been an important force. Some made money, more lost money in this process. New blood filled in when old guys got wiped out.
At the same time, since 2005/6 another type of investors, Ji Ming 基民, people invested mutual funds, have done well for the most part. Some of them did better than most Gu Ming. That’s the case especially after May 30, when the big crash did demage to many Gu Ming. For some the demage has not recovered although the indices went up. The main reason is, mutual funds bought mostly blue chips and those stocks have done well lately. While the stupid “concept stocks” hold by Gu Ming did not go up much.
Now comes to this key question: should individual investor be a Gu Ming or Ji Ming? Interestingly CCTV 2 had a talk on this topic last Sunday. In the program a fund manager promotes why the mutual fund is better; on the other hand a Gu Ming (Lao Zhang, a successful individual investor) gave encourging words to Gu Ming.
Here is my take: in a dymanic market in China like this, if one person is willing to take on risks, and spend time doing some home work, he/she can be Gu Ming. On the other hand, if one person is busy, and have no interest in stocks, finance in general, he/she could hand money to fund managers. Be careful about whom (the fund manager) you hand money to, though. Because not all mutual funds are equal, and past performance (note most mutual funds even don’t have a past) does not gurantee future success.
Last but not least, in China I noticed one thing: some Ji Ming 基民 traded mutual fund like stocks, i.e., they bought funds, when the fund went up or down in a few days, they sold it for a small profit or took a loss during panic. That’s not the original intention of mutual fund. A better way is take a longer term view. Actually if we apply “long term view” in investing, either in stocks or funds, it’s more likely lead to success 🙂