Sasha Planting

A message from the world’s greatest investor and teacher

Editor's note


“I would like to get more information from Moneyweb on how to invest in stocks and shares. I was born on September 22, 1960 and am hoping you can give me good advice on how I can plan so that one day I will have a good pension or investment.”


I received this message from Thulisile this morning. It is not dissimilar to the messages I received last week from David, Bonang, Tumi and Marius. The week before a similar message came from Herbert. I reply to all of them. There is a hunger for investment information – from how to start investing in shares, what the best way to save is – where to find pension fund information, how to trade forex and lately, for information on cryptocurrencies, which I find exciting.


What is refreshing too is that many of these messages come from people who have realised that dedicated and disciplined investing is a life-long process. There is no over-night route to wealth creation. I’m not suggesting that there is no longer a market for those who cook up Machiavellian Ponzi schemes – unfortunately the world is filled with believers – but it is good to see that more and more people are wanting to become investment savvy – the slow and steady way.


Moneyweb is not a registered financial services provider and as such we cannot give advice, but there are fantastic resources available online and it is easy to point investors to some of these. Sites like justonelap.com, sharedirect.co.za and jse.co.za offer useful information.


But the world’s third richest man, Warren Buffett, with a net worth of over $87 billion – all generated from stock market investing – is also a wealth of information. His annual letter to shareholders, released late in February, is pored over by investors all over the world for tips and insights.

This year was no different. He had a lot to say about his well-publicised $1 million bet that he made back in 2008, which has just matured. He bet that his investment in an unmanaged S&P 500 index fund, which follows the stock market up and down like a robot, would return more money for investors in a decade than highly-paid fund managers would.


He was so confident he even let his counterparty to the bet, Protégé Partners, choose the team who would try to beat him. They picked five "funds-of-funds" that they expected to outperform the S&P 500. That was not a small sample. Those five funds-of-funds in turn owned interests in more than 200 hedge funds.


Now this is an advisory firm that knows its way around Wall Street, and which selected five investment experts who, in turn, employed several hundred other investment experts, each managing his or her own hedge fund.


This assemblage was an elite crew, loaded with brains, adrenaline and confidence. The managers of the five funds-of-funds possessed a further advantage, Buffett wrote. They could – and did – rearrange their portfolios of hedge funds during the ten years, investing with new “stars” while exiting their positions in hedge funds whose managers had lost their touch.


You would imagine the odds were stacked against Buffett. Not so. “The five funds-of-funds got off to a fast start, each beating the index fund in 2008. Then the roof fell in. In every one of the nine years that followed, the funds-of-funds as a whole trailed the index fund,” Buffet wrote. Never one to miss an opportunity to teach, Buffett noted that the bet had delivered ‘an unforeseen investment lesson’. Actually there were several lessons.


The most obvious of these was that the constant selling in and out of positions by active managers incurs substantial costs, which erodes any gains that may have been made. Known for his long (very long) positions, it should come as no surprise to hear Buffett advise that investors should ‘stick with big, easy decisions and eschew activity’.


The next is back yourself. Though markets are generally rational, they occasionally do crazy things, he says. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with investment jargon such as alpha and beta. What investors need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals.


For investors who don’t have the time to digest annual reports and company stock exchange announcements as he does, the message from Buffett is blindingly clear: take advantage of the increasing array of ETFs and unit trusts that are available.


And then sit back and let the market do the work. Happy investing.■


Sasha