DIY Investor Magazine
/
December 2015
10
Investing is a complicated business. There’s a constant
din of noise surrounding every decision we make. Do I
buy this or sell that? Are the bears right or will the bulls
triumph? Which fund works for me? Should I go active
and bet on a manager or should I stick with a simple,
cheap passive index tracker?
I’ve been writing about investing for nearly 15 years –
and have actively invested on my own for over 30 years
– and I have learnt five very simple rules that I think
hold true for most situations.
•
Keep it simple if you don’t have the time to run a
very detailed process of due diligence.
And by keeping it simple I mean make sure you
are diversified and not taking too many punchy
bets that may not work out.
•
Keep costs to the minimum although that
doesn’t mean you should always buy the cheapest
fund for instance. A smart fund manager who runs
an active portfolio might be worth paying an extra
0.50% per annum over the very cheapest ETF.
But given this, you should really never pay much
more than 1.5% for any fund, ever, even if it was
run by the most amazing hedge fund master of
the universe.
Virtually everything about investing is uncertain
except for the cast iron fact that excessive fees
WILL destroy your wealth
•
In my experience in most markets most active
fund managers fail to add much value for those fees
I mentioned earlier.
Highly respected Investors Chronicle and Financial Times journalist
David Stevenson
is happy
to practice as he preaches. In this special article for
DIY Investor Magazine
he shares his five
rules for successful investing and considers the active vs passive conundrum.
That’s not to say there aren’t great managers out
there, many of them in the investment trust sector,
just that they are few and far between. But one
simple rule should help.
In very developed, very liquid markets such as the
US the chance that an active fund managers will
beat Mr Market is incredibly low. Not impossible
but just not very likely.
That tends to mean that in the biggest asset
classes I presume to invest in an ETF and not
an active fund manager. The reverse is true in
more complicated, niche markets
•
Stick with dividends over the long term.
Dividends compound up and over many decades
they become the major source of total returns.
The good news is that these payouts can easily be
captured by most fund structures
•
The biggest gains usually come from the most
concentrated, contrarian bets where you’ve done
your research and due diligence and decided that
over the long term the consensus will be wrong.
HIGH FIVE:
SIMPLE RULES FOR SUCCESSFUL INVESTING
