Martin Hawes: Seriously active

A reader asks: "I read with interest your article, 'Bag a bargain in the share market'. I am just finishing Benjamin Graham's book The Intelligent Investor and a lot of what he wrote strikes a similar chord.

Do you find it too time-consuming, though, to hunt for and buy good-value stocks? Based on the fact fund managers often only just beat or even perform worse than the market indexes, my plan is to start investing regular small amounts into several indexes, here and abroad. Do you invest directly yourself or through funds?"

I have read Ben Graham's The Intelligent Investor several times and read it again a couple of months ago. First written in 1949 and revised several times, it is the Bible for anyone serious about investing. Graham taught at Columbia Business School and his pupils included Warren Buffett and Walter Schloss, both of whom give Graham great credit for their success - that is not a bad endorsement.

As a value investor, much of my own investment philosophy comes either directly or indirectly from Graham.

Managed funds or direct investment? One thing that everyone should decide is whether or not they are serious about investing. Those who are serious should look for value and invest directly themselves even though, as you say, this takes time.

Those who are not so serious should use managed funds, effectively paying someone to do the stock picking for them.

Don't mess in the middle: don't put in a little bit of time and still try to be a direct and active investor yourself. This will give the worst of all worlds as you waste time on management but get a below-average investment performance.

Investment is unusual in that it is one area in which it is easy to be average. It is not easy to be an average golfer or an average athlete - you have to put in a lot of work to get yourself to the middle ranks.

However, to be an average investor, all you have to do is buy a passive index tracker fund - that gives you certainty that you will get an average return. Trying to beat the average by using actively managed funds or by investing yourself exposes you to being below average.

I think a lot of people should not risk being below average but should settle for average by buying into passive index trackers.

I buy shares directly in New Zealand and Australia, a game I have loved for 25 years. For exposure to international shares, however, I usually use managed funds. Mostly I would use passive index trackers, although I do use some actively managed funds following careful scrutiny of the fund's investment style, the people involved and their past performance.

Your strategy of regular investment into the markets via index trackers is a good one. You won't get a stunning performance - but you won't get a bad one either.

* Financial author Martin Hawes shares strategies to help you grow your wealth. Email questions to info@wealthcoaches.net