Strategy: How to win the “stock game”
The best way to win the stock game is by not playing
It may sound contradictory, but the evidence shows that active funds, which try to “play the game” of beating the market, fail on average because of fees and the obstacles they face.
Some managers may win for a while, but most eventually lose, and there is no reliable way to know in advance who the consistent winners will be.
Active funds try to look for the needle in the haystack, when your best chance of success is to just buy the haystack! That’s exactly what passive funds do.
The Strategy: Invest in a passive fund
Passive funds are the best choice for sensible investors because they offer the highest chance of strong returns at the lowest cost, with less risk than active funds. The first step when investing in a passive fund is to decide which index you want to follow.
Only after that do you select a company that offers a fund tracking that index. The company is not the investment itself; the index is. The main differences between providers are their fees and how accessible they make it to invest.
The formula is simple: first choose an index, then choose a company that offers it.
What Passive index should you invest in
Remember, a passive fund is always built on an index. These are the benchmarks the fund is designed to mirror. So when choosing a passive fund, these are the indexes you should look out for:
Global: S&P World Index or MSCI World Index
Both track the global stock market by including large and mid-sized companies across developed countries.Local (South Africa): FTSE/JSE South Africa Capped Index
Tracks South African companies while capping the weight of the biggest stocks so no single company dominates. This helps lower downsides by protecting against too large of exposure to one companies stock.
Which company’s fund should you buy
Once you have chosen the index you want to track, the next step is picking which company’s fund to buy. Many banks and asset managers offer funds that track the exact same index. The main differences between them usually come down to:
Fees: Lower fees mean you keep more of your returns.
Accessibility: Some companies make it easier (or cheaper) to open an account and invest.
Reputation and service: Larger, well-established firms may offer better customer support and reliability.
It is important to understand that the underlying investment — the index itself — is the same. So the smarter choice is usually the one that gives you the lowest cost and easiest access.
Remember, pick a global or local index, then pick a company.
“A low-cost [passive] index fund is the most sensible equity investment for the great majority of investors.”
- Warren Buffett
That is all everybody!
If you’ve made it this far, I hope you found the information useful. The site is still in its early stages, but we have plenty of features planned to help make the world of investing clearer for everyone.