Tuesday, 26 November 2013

The Importance of Self Reliance

Apologies for not posting for a while. My father passed away last week and so I have been rather pre-occupied with other matters.

This has been a period of intense reflection about my father and his life, which was quite extraordinary in many ways. He was a self-made man who started with almost nothing. He was both a very compassionate man, but also a hard worker who stressed self-reliance. It was a theme that featured prominently at his funeral and so I thought that this theme of self-reliance was worthy of a brief post.

The managed funds industry obviously likes to encourage investors to put money aside for a rainy day. However, in many respects, they abhor the notion of self reliance. Investing directly in the stock market is too difficult for ordinary investors - best to leave it to the experts. Oh and by the way, that so called expertise comes at a price, so be prepared to pay up, even if your investment fund under-performs the market.

Actually, investing in managed funds  is not necessary. Any, reasonably intelligent private investor with a clear strategy and discipline should be able to invest and outperform managed funds. This is because managed funds are, due to their size, dominated by large caps that are constantly being scrutinised. Thus opportunities to take advantage of mispricing are pretty low. In contrast, smallcaps offer more mispricing opportunities, Furthermore small private investors have a structural advantage over managed funds as they are able to build a stake in small caps without affecting the share price.

My father dabbled in the share market although he made most of his money through property investing. In any case, I think that his values around self-reliance are very similar to the basic theme of this blog. Don't trust anyone who is trying to get a slice of your hard-earned savings. There is not reason that you can't do this yourself. Start reading, develop a strategy that suits your skills and temperament, implement the strategy and most importantly, stick with it!

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