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Welcome to the best Bits of the Money Show, A dietests of just some of the most important insights, the best interviews, the best comments really of the show this week. It would be great if you would share this with some people in your circles. You might well have a member of your family maybe a friend who you think might need to hear. One of our conversations is go to your podcast app and search for The Money Show. Would be great if you would do that for us.
Thank you to start some of the big news stories from this week and our President Sahma Pausa in a way a move I think that might shake the coalition a little bit, removing the Deputy Trade, Industry and Competition Minster Andrew Whitfield. He of course belongs to the DA.
The DA is furious about this. We will hear and I think there'll be developments over the next couple of days about what will happen next, but also now completely unexpected because we don't really at the stage, it seems know the true reason for why this decision has been made. The Time Group co founder and Ceokun Yonker he slammed the decision by the Home Affairs Department to increase identity
verification fees by six and a half thousand percent. He says the move is a threat to financial inclusion and digital transformation. The Home Affairs Minister Leon Shreiber hitting back at him very hard, completely saying that Yonka had misunderstood what was going on, hadn't understood the consultation and interestingly, Capitech a big rival of time they supported the Home Affairs Department and then the NATO Secretary General. He's a
former Dutch Prime Minister Mark Rutter. He likened the president of the US President Donald Trump to a daddy intervening in a school yard fight after the US leader repeatedly berated Israel and Iran, including using some language I haven't rarely heard from a US president in public. Tonight we bring you a mixture of stories from the world of money from the week that has been in our conversation
about how I Make my money. Professor Glenda Gray spoke about her incredible career path, her groundbreaking work in HIV research, and her dedication to improving public health and the health of children.
And my father worked on the mines at EPM. I grew up in. I was born in Broxburg and I grew.
Up first of all in Boxsburg and then we moved to Pastcourt Mapleton and then Wi just outside Nigel, and then we moved to a pace called Scarffin's Wrist which is just between Springs and Blackpan and I used to catch a train from Scarfpinsras station to Boxburg East to go to my primary school, Martin School, in the morning, so my parents would we would Cataclane a top of six in the morning and get to Boxburg East at seven and then walk to school so we could save our money for ice cream.
Sure, okay, from what I've read, you were pretty keen to be a doctor pretty early. Now, there were not a lot of female doctors around at the time. What was it about being a doctor that was so important to you? It clearly mattered, I mean it clearly matters to you still. But what was happening around you at the time that made you think it was such a strong belief as a young person that you wanted to be a doctor.
That just it's hard to really understand that as young as form My parents told me that I told them that I wanted to be a doctor. I think it happened around the time at that stage when we were living on a small holding in Mapleton, a car was giving birth and there was a breech delivery and they had to use a rope to pull the calf out. And the vet looked at me and said, oh, one day you're going to be a vet. I said, no, I'm going to be a doctor and look after and
look after human beings. So I guess that was the tima particular, and it was around the spirits delivery of the of the of this calf.
Was there something about the power of helping an animal then, but helping a human being that the really I mean a breach delivery can be very very dangerous, and yet you know the animals would both have walked away, I mean the car for the first time, we walked away healthy. I mean, there's a real power in watching something like that take place.
Maybe it is a huge power, and I think that, you know, just being committed to you know, I loved animals growing up and as I went to school, you know, I did well at school, and in those days in Boxburg, if you did well at school a year ago, you had become a teacher because you could get adversary and you know, and you didn't have to worry about paying
for your education. And when I told my school Box to High that I wanted to be a doctor, that kind of smiled endearingly at me, and I guess, you know, I was determined, and I applied to Wits University, and at that stage this was doing an experiment. They had decided to diversify who they brought into universe into medical school, so.
There were a lot more women in my year.
They're much more racially diverse, and a lot more people that came from in the middle class and working class backgrounds, not from private school. So when I went to Box, when I got into Wits medical school, you know, it's called a very diverse group. But I also struggled because I didn't have a good education in my latter years at school. We were short of maths and physics teachers,
and I struggled. So, like a lot of people coming into university from education that is not as good as private schools.
It takes a while to catch up.
So for the first year or two at medical school, I really felt stupid. And then suddenly in my clinical years, I caught up my peers and was able to compete and do as well as people who'd come from better schools than in Johannesburg.
It's so interesting that. I mean, so often it's really about getting through the first year or two of university and then you start to see people really grasping whatever it is and off they go, and that that that clearly happened to you. I do want to skip forward a little bit because I do want to get to some of the other things that you've been involved in. But at one point you clearly realize that HIV was
going to be very, very important in South Africa. And when HIV first came on the scene, you know, sort of mid nineteen eighties, I don't think many people realized how important it was going to bed. Did you. Was there a moment when you realized what the AIDS pandemic and how many South Africa was going to take, how vulnerable we were going to be, how big this thing is.
I think there were three things that pointed me to wanting to do something in HIV. So the first thing was I was a student active during a part eight and the organization I worked for, which was Health Workers association used to organize communities around health issues and with HIV emerging, I worked in that sector trying to mobilize communities around HIV and.
And you know, and work with them. And then I went and.
Worked at Barraguaa Hospital and I worked in the main ICU and the party thoracic surgeon who was in charge of ICU was this brilliant surgeon and I could never understand why he wasn't working in the theaters. And he was one of the first people in South Africa who got HIV and he died in nineteen eighty eight.
And he was my father worked on the mines at e PM. I grew up.
I was born in Brocksburg and I grew up first of all in Bucksburg and then we moved to place called Mapleton and then which to outside Nigel and then we moved to a pace called Scarffin's Wrist which is just between Springs and Blackpan. And I used to catch a train from Scarfpinsras station to Boxburg East to go
to my primary school, Martin School in the morning. So my parents we would catchaplane a top or six in the morning and get to Boxburg East at seven and then walk to school so we could save our money for ice cream.
Sure, okay, from what I've read, you were pretty keen to be a doctor pretty early. Now, there were not a lot of female doctors around at the time. What was it about being a doctor that was so important to you? It clearly mattered. I mean, it clearly matters to you still. But what was happening around you at the time that made you think it was such a strong belief as a young person that you wanted to be a doctor.
I just it's hard to really understand that as young as form. My parents told me that I told them that I wanted to be a doctor. I think it happened around the time at that stage when we were living on a small holding in Mapleton, a car was giving birth and there was a breech delivery and they had to use a rope to pull the calf out, and the vet looked at me and said, oh, wonder, you're going to be a vet.
I said, no, I'm going to be a doctor and look after and look look after human beings. So I guess that was the tima articulated. And it was around this spreech delivery of the of the of this calf.
Was there something about the power of helping an animal then, but helping a human being that the really I mean a breach delivery can be very very dangerous, and yet you know, the animals would both have walked away, I mean the car for the first time, we walked away healthy. I mean, there's a real power in watching something like that take place.
Maybe it is a.
Huge power, and I think that, you know, just being committed to you know, I loved animals growing up, and as I went to school, you know, I did well at school. And in those days in Boxburg, if you did well at school and you were a girl, you'd become a teacher because you could get aversary and know and you didn't have to worry about paying for your education.
And when I told my school box To High that I wanted to be a doctor.
That kind of smiled endearingly at me, and I guess, you know, I was determined, and I applied to VIT's University.
And at that stage this was doing an experiment.
They had decided to diversify who they brought into universe into medical school, so.
There were a lot more women.
In my ear, they're much more racially diverse, and a lot more people that came from the middle class and working class backgrounds, not from private school. So when I went to Box, when I got into WIT's medical school, you know, it's called a very diverse. But I also struggled with I didn't have a good education. In my latter years at school. We were short of maths and
physics teachers, and I struggled. So, like a lot of people coming into university from education that is not as good as private schools, it takes a while to catch up.
So for the.
First year or two at medical school I really felt stupid, and then suddenly in my clinical years I caught up to my peers and was able to compete and do as well as people who'd come from better schools in Johannesburg.
It's so interesting that, I mean, so often it's really about getting through the first year or two of university and then you start to see people really grasping whatever it is and off they go, and that that that clearly happened to you. I do want to skip forward a little bit because I do want to get to some of the other things that you've been involved in. But at one point you clearly realize that HIV was
going to be very, very important in South Africa. And when HIV first came on the scene, you know, sort of mid nineteen eighties, I don't think many people realized how important it was going to bed.
Did you.
Was there a moment when you realized what the aides pandemic and how many South Africa was going to take, how vulnerable we were going to be, how big this thing is.
I think there were three things that pointed me to wanting to do something in HIV. So the first thing was I was a student activist during a part eight and the organization I worked for, which was Health Workers Association, used to organize communities around half issues, and with HIV emerging, I worked in that sector trying to mobilize communities around HIV and.
You know, and work with them.
And then I went and worked at Baragua Hospital and I worked in the main ICU and the part of domestic surgeon who was in charge of ICU was this brilliant surgeon and I could never understand why he wasn't working in the theaters. And he was one of the first people in South Africa we've got HIV and he died in nineteen eighty eight, and.
He was my father worked on the mines at RPM.
I grew up in I was born in Buxburg, and I grew up first of all in Buxburg, and then we moved to pace call Mapleton, and then but to outside Nigel.
And then we moved to a pace called Scarpin's Risk.
Seven Notes is the best of the Money Show from this week. This week Personal Finance Warren in Grimy, financial advisor and co founder of Galileo Capital, breaking down the rands impact on your finances, also talking about why the rand dollar exchange rates there's a real impact on your financial.
I mean understanding that it affects almost every aspect of our lives where something has a price. Stephen, if you're you know, if you're buying food, you would think that the dollar has no impact, but a lot of our food items are dollar related. When they quote the price of maize, it's not quoted unfortunately, you know, in global
terms in rands, it's quoted in dollars. And if you go through something like fuel oil in particular, you'll notice that it's always you know, dollars per barrel and the price of fuel again has an enormous impact on our economy. It affects the cost of transport, which means that it affects every single item that gets delivered to a shop, and then you know we have to get to the shop and and so on and so on. So the moment you look at the rand and you look at
how it's moving against a dollar. If if life is volatile, which is seems to me every single day of our lads at the moment, and especially the currency, it means that our cost of living is hugely impacted by the rand dollar and cost of living. The only thing that the Reserve Bank can do to control the cost of
living is use interest rates. So for dealing with rising cost of living because of imported inflation from the weak rand versus the strong dollar, then we're in a position where the Reserve Bank has to respond to that, and so they push up interest rates, which makes our mortgages more expensive, our credit cards. It makes it difficult for government to have enough money to buy and buy and pay for infrastructure because it's got to serve a debt.
And so you can see very quickly how you can get into a real downward spiral with with a you know, a very strong dollar and a very weak rand, and equally that if that cycle turns how it can become something of a virture circle.
Okay, and then I mean what pushes the value of the rand up and what pushes it down? And you're not allowed to say because they're more buyers than sellers.
I always think, you know, famously, one of our not current cabinet ministers said, you know, it doesn't matter, We'll just move the rand in our own direction or something like that. We'll just pick up their.
Own We'll pick the rand, We'll pick up the rand. It was you.
I wish we could do that. I wish there was someone in our government that was that powerful that could could just pick up the rand. So so I think to understand, one one huge advantage we have is we are one of the most traded. The jargon is liquid, so one of the most liquid currencies in the world, you know, after things like the dollar in the Euro et cetera. One of the one of the merging market currencies that's most easy for global investors to buy and
sell is the Rand. And the reason for that is we've got very deep capital market, so we've got very strong banks, we've got a very good exchange and very well managed, well regulated financial system, and so foreigners will buy and sell our rands with ease, and that makes us very susceptible to to global good global tides, let's say. And so there is almost nothing that the government can do to pick up the rand or to make it
fall if they really wanted to do that. As well, we find ourselves at the mercy of a lot of global sentiment. So, for example, if the world is reasonably positive mood, which seems to be in the last sort of almost want to say, twenty four hours, we watch the rand go from eighteen to the dollar to seventeen seventy, and we have nothing to do with that. It's not like we suddenly became a slightly better country where economy grew a little bit faster or something like that. That's
entirely global global factors. It's geopolitics at play and our round moves. And the only impact that a South African institution can have on the rand would be the Reserve Bank. And what they can do is they can keep interest
rates high, which is currently what they're doing. And the reason they're doing that is because they're trying to make the and an attractive place for foreign investors to store money, because if they can store money here and earn eight or nine percent a year, it's much better than what they can do if they can store money in let's
say the US at three percent a year. So we don't want to be in a position where suddenly, you know, you can get three percent on rands or three percent on dollars, because guess what, people are going to move their money out of rands and into dollars. So the reserve banks the only institution that can influence the rand, and I would say it's a small impact. Global dynamics move the round a lot more than anything else. The only time we, unfortunately, can really affect the rand would
be by dragging it down. And you'll remember the weekend special. And I'm not talking about Upper La Fasci, the famous South African fullback. I'm talking about the other one, the Minister of Finance who was there for a few days. His appointment and I think I was almost live on the show when that happened, had a cat strophic effect on markets and most especially the Round, and equally when he was then booted out of the job. So the
round recovered. So a major political misstep can cause the rand to lose a lot of value, but unfortunately the other way around won't see the rand, for example, going from eighteen to fourteen to the dollar. If we do something amazing in politics. I think it's kind of a one way street. We might creep up over time, and the rand might get stronger gradually if our economy grows and our politicians managed to behave and play nicely in
the government of national unity. But go the other way and we can collapse the round very quickly.
Is there any benefit to having the rand traded in this way? I mean, it goes up and down all the time. It can be incredibly frustrating. But I suppose the benefit would be that it's because we're an open economy, goods flow in and out of it very easily, and that's generally a good thing. It might help to you know, it means that food prices might be a bit lower, for example.
I think it creates the opportunity for good news to happen. And so just understand where we are right now. We're in an environment where interest rates are high, and we certainly looking at an inflation rate that's declining, and so if interest rates start to come down, that means that things like our mortgages will get cheaper, and it means that companies have a little bit more cash flow to invest in growing themselves and you know, buying more stock.
The government has a little bit more breathing room because interest rates are lower, they have a little bit more cash to pay do some more debt, or or do
some more infrastructure spending. And so when you've got a very liquid, very open market, if you actually do things well and you take the right steps and the right actions, then this liquid market becomes an incredible strength, and investors feel great comfort in allocating money here because they can see things that are going well, and they also have the comfort that they can pull their money out if things aren't going well. So I think that it's it's
an enormous strength, you know, Stephen. I think it's just unfortunately, because it's liquid, it's also a very very quick and almost immediate price on what the market thinks of what's going on in the country at a moment in time. So when we're behaving badly or not doing the right thing, or not getting the reforms, then we see a weak currency and when our economy is not growing, we see
it there as well. So I think, unfortunately, we've just seen what the world thinks of our policies and maybe our lack of execution of those policies, and that's why we're in the situation we are now. But it's not a one way bet. It takes good action, and we could see the exact opposite, and then we would all be thrilled with what's going on, I guess, except for the mine the mining houses who sell their commodities in dollars and they would love their n to be weak for a long period of time.
I mean other examples, of course, Liz trust is a British Prime Minister, the reaction to the British pound on breaks, and all sorts of other examples. Okay, how does the ran then influence some money? We're dealing in rands? The rand goes up and down, obviously it affects what we can buy and how much things cost.
So let's start with the one that I think is almost core to the whole country, and that will be the fuel price. If you a country like ours, and I mean we don't have a lot of fuel in the ground, you know, that we can pull out and convert let's a gas to fuel, so it means we basically buy every single barrel of oil that we convert to fuel and consume in our country. And because that's dollar denominated, if the rand is sitting at nineteen to the dollar, it means that our fuel is more expensive
and that's inflationary. Equally, when the rand starts to go through a period of strength, and potentially now for exams or where we see the dollar price coming down again, then you might get a time where you've got a strong rand and a load dollar price of oil, which means that we're in a deflationary environment, which which would be a huge relief to us. That means our fuel prices get cheaper. If that happens, it means inflation goes down.
And if that's falling, inflation means food foods getting cheaper, the goods we buy are getting cheaper, and that means the Reserve Bank looks at this whole situation and goes, well, hang on, you know, we don't need this massive sledge hammer of interest rates to deal with inflation. Right now.
We can kind of you know, lighten the load on the on the whole economy because inflation is under control, and that might just be the spark that causes a further economic growth and some sort of acceleration from zero point five or one percent year whatever it is at the moment, to you know, two or three or four percent. So the rand and most especially the oil price our big factors in the way that our money will move.
And just to understand that once we get that sort of kick on of positive sentiment, we look at things like, you know, the bond market, and if the bond market, you know, the prices of bonds are moving the opposite direction to interest rates. So if interest rates are falling,
it means the price of bonds is rising. That's very good for most of the big retirement funds, pension funds, et cetera, lots of retirees, and so if interest rates are going down, it also means that stock markets might do well because high interest rates are a drag on share prices. It means that you know, companies don't have capital to reinvest, et cetera. I mean understanding that it affects almost every aspect of our lives where where something has a price.
Stephen seven notes, you're listening to the best of The Money Show The Money Show I'll shape shift to this week. Connie Matla Juana, the CEO of Cram Enterprise and founder of the Law Foundation, sharing her story astonishing to go from someone who was about to be retrenched to starting her own business and the impact that she's managed to have on her own career and other people.
I'm very solutions driven, so when I had rumors through the grapevine that there might be retrenchment coming, I made it easy for my boss. I went to talk to him to say, I know this thing is coming, so I'd rather up put in a difficult position. I will volunteer to be one of the people that live provided that if I start my own thing, you're gonna support me. And my boss was like, one hundred percent, I'm going
to support you, and that's why they did. So I took the retrenchment package and I started CERIM Enterprise with my desk from my previous work, my laptop from my previous work, and my cell phone from my previous work. And I started in a little corner of my bedroom day and that's how Cram Enterprise was launched.
How did you decide what to go into.
I've been marketing professional, so I've been doing marketing for over by other time, I was in marketing for over fifteen years, and I always enjoyed seeing brands come to life, and I like, what branding does you know? Seeing something that is plain creating something beautiful with it. It was a no brainer that that was the industry that I
was going to go into. And because I was working mostly in the gaming industry, I knew how important promotional products are and I knew that there was a market for it, and I understood the industry, so it was easy for me to go into that space.
Corporate gifts is interesting. I mean I've watched people have conversations what should we give the guests at our conference this year, and they've been certain phases. There was a time a long time ago where every corporate gift was a flash drive. I mean it feels like ages ago. Then a few years ago, there was a time when it would be wireless headphones, you know, the cheap wireless earphones.
And I think the thing about that is you keep them because you lose your Apple ones and so you end up using them, right, I think they're quite effective. How are there certain things that just work When it comes to corporate gifting, you have to know what you're actually giving people, and it has to be something that actually want or that their children want.
Corporate gifts have evolved over time. It's no longer like little cheap things that you just give away for the sake of giving away. They've become more practical, so you get even the clothing that you get these days, you can tell that is a promotional jacket that you're wearing because it has gone into that space. You now have different types of water body clothes. They used to call
them squeeze bottles because it was the plastic ones. Now you get your vacuum bottles that will keep your drinks what for long called for long, So the space is shifted now. The corporate gifts has also gone into environmentally friendly products, so you have a wide variety of choice that you can choose from. So whether you have environmentally conscious you are more of a high end kind of a client that want high end gifts, you are able to get those. So I think it has evolved quite
a bit, even the branding itself. I mean it used to just be your heat press, you embroidery. Now you have things like laser engraving or a clothing. Now you have things like the Rabbi kind of branding that you can do. So it has evolved quite a bit.
Your first client, where did they come from? Was it someone you knew already? My former boss?
So my the very first money that came into crram account, actually it came from my church, CA Bible Church way my fellowship. They were the very first lion because my past I was like, you know, we're got to be the first one to do this. So the very first marks that I branded, they were for CA Bible Church. And then of course my boss followed through and his promised that they were going to buy corporate gifts from me.
It was the first big order that I got and it was exciting and yeah, so from there on it was not as easy as I thought it would be because you think, you know people, a lot of people, and it will be easy because I know Steven Stephen is definitely gonna buy. But then stevens a boss, and the boss the boss, and the decision is not as easy as saying, I know Cornelia support her. So I
had to prove myself in the industry. I had to do this small jobs I had to be very aggressive with showcasing every little thing that I do on our social media platforms to attract clients.
And yeah, the brand grew. One of the things that's really changed with starting a business, and maybe especially one like this, is social media. And I've spoke. We spoke to someone a little while ago, Lisa Rally, who started a gym chain in Durban thirty years ago, and the way she did it, she said she literally had to print pamphlets and put them under people's windscreens right to do home gym visits? Okay for you? By the time you were starting was twenty eighteen, twenty nineteen, wasn't it
thirty eighteen? Yeah, before the pandemic, we have to.
Say, before the COVID years.
Yes, and you could use social media And did that make it a lot cheaper to start it?
Did it?
Did it made it a lot cheap? Purchased that? And also there is Gaming for Africa magazine, Gaming for Africa Magazine caters for the gaming in US because that's why I am so. I had a slot in there. So every Thursday they will showcase some of my products and that will be circulated to their database. I think that also helped a lot to create a brand awareness, but also posting relentlessly on social media. Whatever however little thing I do, whether it's one mark with a picture on it,
I'll post it. If I print a flyer, I'll post it. Everything was on social media, and because I didn't have to pay much except for the data, it was it was a no brainer that does the platform to use.
Connie, You at some point had to start employing people, right, And I always think that's such a big responsibility. You're you're kind of responsible for this person, for their children. Who was the first person you employed? Are they still with you? Were they left?
I know they left. The first employee that I employed, his name was Justin But then I employed him just before COVID hit, and then COVID hit. Then I could not keep him because of the COVID.
But employee people, have you found that experience because you're certainly responsible for them. You have to deal with them, you have to pay them. They also have to do things for you. You have to manage them.
It's a difficult one, especially because I'm passionate about the youth. So my employees are young people, and young people are energetic and sometimes they can be too energetic, so it can become tricky at times. But if you have all your processes in place, I mean I have all the contracts in place, I have all the procedures in place. Everyone has their staff and book, everyone has their uniform. Everyone knows what leaves to take, when to take it.
Everyone knows when to claim for over time, when not to claim for overtime. So because everything is in place in terms of HR, it's quite easy. Even they pay roll. I do it myself because I use a system, so it's it's easy to manage that. And also I do performance reviews regularly. I also do one on once. We have our weekly meetings every Monday with the team. Every year we go away for our strategy session to plan for the next year, so that everyone knows what's expected
and what to do. So it's it's it's quite interesting. It's quite easy. You just need to have your processes in place.
You you also try and help young entrepreneurs to your foundation. Do you find that young people who you're working with want to be entrepreneurs because they want to be entrepreneurs or do they want to be entrepreneurs because there's no other way to get a job to get an income.
Most of them because there's no other way to end an income. Interesting enough, some of them it's because they think it's a ticket to be rich, yeah, and then they find out very quickly that actually it's not. So there is a different caliber of young people that we work with, and that's why I take time to get
to know them talk to them. When we planning are You Summit that we just held now on the sixteenth, I made sure to be the one to do thesvps to talk to these people just to get into their head, to find out executly who they are and why are they wanting to be at the summit, and that informs whatever program that we put together to help these young entrepreneurs.
Connie Male, they're highlighting her leadership approach and what she's been able to do to try and create work for others and for herself and to empower entrepreneurs. Seven you are listening to the Money shows the Best Bits Investment
School this week. Francois Smith, client Portfoilio, analyst at Stonehage Flaming Investment Management and clarlog Else, the chief investment Officer and principle at First avenue investment management, looking at the evolving dynamics the changing dynamics of the old active versus passive investing debate, also looking at hybrid strategies that focus on cheaper investments and adaptability in response to how markets are moving.
So passive investing in its most traditional form is when a particular passive provided attempts to mimic traditionally a cap weighted index by simply buying and holding all of its constituents, whereas an active manager, on the other hand, they go and attempt to identify good securities beforehand and encolator portfolio with the promise of potentially outperforming the market in which they're investing.
So you could either buy the JC or share that would be passive, or you could buy capy tech that would be active. Well essentially yes, yeah, okay, Clio, I mean this argument, this debate has been around for a long time time. Is it possible to know who's best and a lot of people point to passive investors is having a better track record over time?
Well, if we could just be a little bit more nuanced about active versus nuance right the minute you walk away, the minute you step away, even by an ounce from mimicking the index as it is the minutry step away and say I'm going to replicate the index on an equal weighted basis, or I'm gonna index I'm gonna mimic it on any other basis. You are active right the minute you do that, and you you because you will receive an outcome that is different from that of the benchmark.
And the rationale would be, I'm doing this because I believe I can outperform the index, okay by making this one nuanced change. Okay, So now here comes an argument is that the vast majority of active managers, if you look at it over a long period of time, to perform the index. I think there's a statistic that says only ten percent of up to fifteen percent of managers
outperform the index over say a five year period plus. Right, And so whether or not it's cheap or expensive or what, the point is the prospect of not beating the market is lower the minute you walk away from the index. So better stay with the index. You pay less. Maybe you don't get some of those spectacular It turns like Warren Buffett, but what are the chances? Because you stand the chance of missing that. You know, you can't pick
the guy who beats the market. It's difficult. It's like a lottery.
From so you you you've recently put together an article about this, and you talk about costs and you suggest that costs are actually king and it is cheaper to invest passively than actively. What costs are important if there is a possibility of outperforming in the market.
Well, investing is inherently an uncertain endeavor, and costs are a part of it. That is certain. So if you are a client looking to collate a portfolio, it is something to be very conscious of. It is one of the deterministic components that can actually be controlled. So it is truly important.
Would I mean you suggest that in fact, cheaper funds tend to outperform more expensive ones. That makes no sense to me. I have to tell you why is that.
Well, it all comes down to being able to pass through the performance and expertise of the manager, whether it's an active manager, a semi active manager, or someone exactly as you've just pointed out, someone who inherently departs even slightly from the cap weighted index. It comes down to being able to pass that outperformance onto the customer. And that is really where the value lies. That is the promise being able to get that excess performance into your investors' hands.
Mmm. Hell, I mean I'm interested in that. If if cheaper funds were always if the cheaper ways to invest always outperformed the more expensive ones, how do the expensive ones even survive?
Yeah, because when they're expensive ones. Well, let's put it this way. When an manager cannot perform the benchmark right, the index or the market, it's worth it. It's worth a billion dollars. So a good example is you pay a premium for the opportunity that maybe the guy you've chosen a Warren Buffett. Okay, that's worth a lot. Maybe the guy you've chosen is Phil Fisher. Maybe the guy who've posen is one of the greats. Right, and there are all these people around the world. Now they're not
as many as they are funds. But you pay a premium for that prospect because when you do get a right the outcome is completely outstanding by a country mile, and I performs the market by an order magnitude you would never have imagined. But you pay for that right up front. You pay for that chance.
There's so few of these people, it seems, around the world. So presumably they make quite a lot of money when they do it, obviously, but at the same time, it just raises the level of risk to get involved in this, and over time technological change might well have an impact on you know, who is able to actually actively manage a market in that way.
No, no, no, no, no, no, I think you mist understand it, Steven. It's not different from record companies, record companies, how many record how many artists out there have record deals? And how many artists are out there ever become top selling artists? One percent of artists actually occupy most of the playtime in a radio station. But radio stations pay the artists to take that chance that they'll get the next Michael Jackson, the next Beyonce. Why is it any different? For as the management.
Makes a lot of sense when you put it like that. Francois are active and passive, and I I sort of started off by saying that there might be a little bit of a breakdown in the definition, that it's a bit more nuanced than it used to be, or different houses change.
Well, it's exactly as he is alluded to. Yeah, as soon as you depart from the traditional cap weight to the indexing strategy. You're inherently making an active decision. And what's really interesting is that your passive providers are more and more giving exposure to very niche and unique corners of the market, different weighting methodologies, different styles, different strategies,
and that in itself is an active decision. So what essentially is happening that even if if you are picking a passive product, you are making an active decision to have an exposure to a part of the market that you potentially believe is going to do better than the overall market.
Okay, so are we seeing the sort of old fashioned sort of differences between the two breaking down a little bit, I mean, is there a different way? Are we looking at the market in a way that's slightly different from where we were ten to fifteen years ago.
I think when considers the activists passive debate, people view it in dichotomous lens, and I think that is both limiting and contentious because I believe that having passive exposure gives you low cost, cheap market participation, and you also and by incorporating active bets in your portfolio, you are allowing for the prospect of potential art performance of that market.
Getting it right is exceptionally difficult. But being nihilistic and not allowing for the possibility, I think is limiting yourself and your portfolio.
Clilo, I mean they the idea that people are active. Does that mean that they're actually as active as as they sound. I mean, when you talk about an active asset manager, I have a sense of them doing something every day. Presumably they're not, you know, changing changing what I've invested with them every day. I mean, I presume they're not as active as all that they're They're taking a lot of information every day, probably.
Yeah, And they are grades of being active. They're you know, they stream. We have what they're called day traders who never go to bear without closing a possession, right, and then they're they are they stream like such as Warren Buffett, who can hold up possession since nineteen fifty as a dead end Geico, okay, nineteen fifty till today.
Right.
So these are two extremes. But I have to tell you that I think when you are an investor you want to put your money to the stock market, you really should consider yourself as someone who's buying a hybrid car party electric battery and part petrol. Right, the electric battery is a passive party, it's cheap. The petrol is the active part. You have to pay the aill prices that goes up and down. Right, you blend it two to get on average a lower price or a lower
cost of energy than has just gone fully active. Right, both have a role. There are some markets. I think, if you want to buy cash, why get an active manager just to invest in cash that you can do passive. Some people feel that way about bonds that you can do passive. Now with equity where you stand the chance of getting exceptional outcomes, well, you also have to pay sometimes an exceptional amount of money to participate in that. That's your petrol. Right, that's where you get more octane.
Hmmm, that's such a that's such a useful way to explain it. So so then, okay, we see that traditional categories are blurring. Francois, I mean presumably this is going to continue. I mean that blurring is you know the whole way in which we look at this is going to continue to change.
Yeah, yeah, I think so. I think the never the market will never reach a point where there's complete polarity towards the one, the one side or the other, because active managers have to do research and they have to get into parts of the market that is unique, and in doing so they keep the market relatively efficient. Passive providers rely on that to to provide low cost markets that are relatively efficient, and as soon as the markets are perceived to be inefficient, active managers will jump in
and they will try to exploit those opportunities. So having saying that, well, passive is the only solution forever and ever, I'm in and think that is the way.
That's Francois Smith and Clail Orgie also giving you some expert insights into the evolving and changing landscapes of active and passive investing and looking at hybrid strategies as some of the best bits of The Money Show this week, just to digest of some of the most important insights. If you'd like to hear more, you can go to our website or please go to your favorite podcast app and search for The Money Show. Have a good weekend,
stay warm. We'll be back with you on The Money Show six o'clock on Monday,