Exploring the Notions ofInvestment Expertise and Strategies

This study explores the differences in expertise and investment philosophies among private and professional investors (mainly in Switzerland) in the management of their personal investment portfolios. It uses the valuable five-step adult skill acquisition model developed by Hubert L. Dreyfus (2004) to characterize the investment ‘experts’ and establishes key findings and suggestions from their investment behaviour, criteria and strategies for the ‘ordinary’ investor. The notion of what constitutes ‘expertise’ in general but especially in the area of financial investment (stock market) was found to be under-researched. A comprehensive review of the existing literature was conducted to form the theoretical basis for the research and to establish an initial hypothesis. This conceptual framework defines the organization of the study and identifies its challenges, concepts and ideas. A research design framework could then be developed to identify strategies for inquiry (research methodology) and data generation methods. These formed the basis for an extensive online questionnaire, which was answered by 550 participants. In regard to the three research questions developed, this survey was followed by diverse analyses and discussions that delivered key findings and answers for my research. One of the main foci and accomplished result of this research was to develop a method to identify and characterize the experts amongst the asset managers, institutional investors and private investors and to formulate their expert recommendations into a feasible investment process for the benefit of the ordinary investor. A key finding was that education, financial qualification and experience contribute significantly to informed investment decisions, i.e. diversification of assets, rebalancing of portfolios or passive investing. As hypothesized, the professional investors exhibit superior investment behaviour. However, every fourth private investor also demonstrated characteristics of an expert. A descriptive and statistical analysis of the expert group characterized them as highly educated, experienced, and diversified. They invest for more than 7 years in passive managed funds rather than single shares, with an expected average return of around 7%. Their preferred asset classes are shares, corporate bonds and commodities and they view the knowledge and size of a company as well as the industry as the most important investment criteria. In addition, they favour asset allocation, value investing and fundamental analysis as imperative investment strategies/applications. The main practical contribution of this study is the recommendations for general investors drawn from the experts’ knowledge and experience. These include: ‘educating oneself’ to become an informed investor or expert; qualification or re-qualification of financial advisers; knowing who you are by developing your risk-profile; investing for the long-term if disposable funds are not needed for short or mid-term purchases within a well-diversified portfolio; being wary of the cost, and thus reducing the total expense ratio as much as possible; not stock picking or timing the market; investing in passive funds within superior asset classes; controlling emotions when investing; rebalancing ones portfolio when required (keeping the asset class ratios in control) and continually investing additional disposable funds according to the concept of value averaging (increasing the value of your portfolio periodically). The limitations of these findings are also discussed and the possible directions for future research is outlined.