For individuals, long-term investing is better

By Emily Chasan

NEW YORK (Reuters) - Even though stocks have fallen sharply in recent weeks and Wall Street thinks the stock market is in a funk, individual investors who focus on picking stocks for the long-term are still poised for growth.

By focusing on the long term investments, instead of following the latest fad, individual investors could be doing better, strategists say.

"Individual investors have a monstrous advantage, in that institutional investors time horizons have shortened so dramatically," Rich Bernstein, Merrill Lynch's chief investment strategist, said at the Reuters Investment outlook summit in New York.

"Individuals can take positions, find undervalued assets and wait 2-6-8 years for the investments to build ... For an individual investor to build wealth you've actually got the leg up on institutions."

In fact, individual investors do say they are doing somewhat better, helped by stronger stock market returns in 2005.

Fifty-eight percent of individual investors said their investments performed better in 2005 than the previous year, a study of 1,000 individual investors from The Retirement Corporation of America showed on Tuesday.

WINGING IT

But individual investors have been hesitant over the past few years to put money back in the stock market.

"I don't think they have really recovered from the bear market," said Ed Keon, chief investment strategist at Prudential Equity Group in New York. "Clearly people lost confidence in the stock market after the collapse of the bubble and people put their money into things they consider safer," he said, citing investors' hesitance to put mutual fund money into big-cap stocks after the dot-com boom ended.

"I think the average person out there in the market is winging it," said Daniel Kiley, chief executive officer of The Retirement Corporation of America, an investment advisory firm in Cincinnati, Ohio. "It's not that they don't want to succeed, they don't have a systematic approach to the way they're investing or diversifying."

Individual investors often buy high, at the tail end of a market bubble, and sell low, just before a bull market is about to start again, Kiley said.

"From an emotional perspective, for individual investors it is a lot easier to buy high and sell low, but the exact opposite is required," Kiley said.

MAKING LONG-TERM PICKS

Individual investors, however, do benefit from longer time horizons, because most are unlikely to make rapid, continuous changes to their portfolios -- the common practice for institutional investors.

Only 24 percent of individual investors said they would be willing to wait less than 6 months to move out of a poorly performing investment, according to the survey. But 21 percent said they would wait 1 to 2 years before getting out of a losing asset and 10 percent said they would wait 2 or more years.  Continued...