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Dilbert's broker

URL: http://dilbert.com/strip/1992-7-10

A couple of weeks back I went to go wish Kristia and the rest of the Just One Lap team a huge congratulations on their 100th podcast. It’s a fun show to listen to, nothing like the rubbish you’d see on CNBC, or the meaningless drivel you’d read in a typical finance paper. If you have some time on your hands go and give a few shows a listen here.

To celebrate this massive milestone, they’d planned to interview Sam Beckbessinger about her wonderfully titled book “Manage your Money like a F*cking Grown Up“, but being from Cape Town meant that Sam hadn’t experienced real Joburg traffic yet, and was running late.

That meant that instead of starting with Sam, Kristia cornered me and asked if I’d be happy to step in as an opening act of sorts, like when the Beatles opened for Roy Orbison, she never said 🙂

One thing that came up a couple of times was the fact that the market has been making Kristia quite miserable for the four years that she’s been investing. With practically no growth, it’s made her feel like all she’s doing is putting her own money into the market and getting no extra benefit in return.

Now the first thing is that Kristia is wrong, the market hasn’t gone nowhere for the last four years, if you look at the chart below of the JSE in dollar terms over the past four years, you’ll see it’s actually gone down by nearly 18% as the green line below shows.VWRD vs EZAThis is where I should remind you that the JSE isn’t the market, it’s a market, just the local market. A minute tiny miniscule piece of the global market, only 0.7% of it. When you invest in the just the South African Market, what you’re actually saying is “I’m better than all the fund managers and economists all over the world. They think they know how to invest, but I’m going to show them, out of the hundreds of stock exchanges and thousands of companies in the world I’m going to put everything into the best 1%. I’ll have so much winning all the winning will make me sick of winning”.

If that’s what you do, I hope you make really good money out of all the victims that invest in your unit trust! It’s not only a very limiting investment decision, it’s also very risky keeping all your eggs in one basket, especially when up until February that basket was run by a basket case.

And that brings us to another question someone raised in the podcast which “What actually is the market?”. The market is the combination of all the worlds stock exchanges in proportion to their sizes. Your goal as an investor should be to own as much of that as possible, at the lowest cost possible.

Now if you had a lot of time on your hands you could try get a brokerage account in all the different countries in the world, and then spend thousands of hours a day trying to calculate what percentage of each you should hold only to realise that you’ve ended up broke because of all the trading fees.

Fortunately I’m far too lazy for that, I only want to own one ETF, so I do, the most diversified one (the biggest basket if you like) you can buy if you’re an alien (the US calls people who have never lived there non-resident aliens), the Vanguard FTSE all world index, or VWRD. It’s also the brown line in the chart above which is great, because it means that in the last 4 years I haven’t lost 18%, I’ve actually gained 17%.

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