By Lee Samaha - October 17, 2012 | Tickers: AMP, FB, GE, GOOG, TROW | 0 Comments

Lee is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

At some point in his/her investing life, every private investor is faced with the same question: Does he actually add value by investing himself or not? I suspect the most common response is to ignore the question safe in the notion that its just a bit of fun on the sideline. Another is to avoid the complication of benchmarking performance and just be happy that the account is positive. However, for full time investors, the issue simply cannot be avoided.

Discerning readers will note that I specifically reference private investors here. The reason is that professional investors are not that as exposed inhow they earn money (fees, etc.) to the vagaries of performance. Private investors lose money when performance is negative. Do money managers refund fees?

Why Professionals Arent Trying to Outperform

It gets worse: The investment industry has learned a fundamental truth of behavioral finance and constantly applies it. Im talking about the tendency of investors to psychologically weight a loss double that of a gain.

Asset managers understand this because they realize that investors will overweight a losing performance versus a winning one. In other words, if an asset manager underperforms for a client his downside risk (losing assets under management) is far greater than the upside from outperforming. Now you know why the investment industry produces such samey benchmark-hugging performance. Its in their interests to do so.

If there was a difference between what, say,T Rowe Price (NASDAQ: TROW) and Ameriprise Financial (NYSE: AMP) did, surely it would show up in marked differences in share price performance?

The rest is here:
Why Private Investors Should Outperform