“Greater rewards, lower costs”


Welcome to The South African Index Investor – a forum developed not only for index investors, but also for those investors who are interested in making rational investment decisions. Index investing should form part of that process, but then again I do not necessarily hold a fundamentalist view on index investing and believe that active investing has indeed an important role to play in your overall investment strategy.

I have done extensive research on active and index investing strategies with special reference to the South African collective fund industry (mutual funds). I believe, quite simply, that selecting the previous year’s top performer year after year is a worse long-term strategy than selecting and continuing investing with a so-called mediocre fund. First of all transaction costs do matter; second, the performance of active management is seldom consistent; and third, actively-managed funds are normally aggressively marketed on especially short-term performance records, which brings us back to the two concerns raised earlier.

As mentioned in the opening paragraph this forum is dedicated to rational and hopefully successful investing – which is accomplished by following a multi-disciplinary approach towards your investment plan. Not only do you need to be aware of economic fundamentals and conditions that will underpin your potential investment growth, but also that financial markets are probably driven more by the aggregate investment psychology (prevailing market sentiments) than is normally perceived.

One other elementary understanding is required – the world of investing is a business. If you entrust your investments to professionals understand that they are in business to make money. Whether   they primarily look after your interest is sometimes debatable, but I know they cannot guarantee performance “or your money back”.

You and only you will eventually have to live with the “fruits” of your investment efforts. You can blame poor markets, incompetent investment advisors/managers and the like as much as you please, but ultimately the responsibility for your investment decisions is yours. My best advice to you would be to gain as much investment knowledge as possible. You do not need to be a do-it-yourself investor, but be knowledgeable enough to identify whether you are receiving value for money or not. If not, index investing will provide you with reasonable results at considerably lower costs than those associated with “professional” investing.

Step out of the conventional!  Experience, debate, accept or reject alternative ideas. That is the only way to learn. This is your forum: have your say, test my views and hopefully I shall back them up with hard facts.

Good luck!

Daniel R Wessels