Megan Fraser

December 2023

In a recently published post on social media, a well-known SA active manager embarked on an entertaining, albeit somewhat disingenuous, rant about the abhorrence of being average. The post offered a fascinating insight into how many of us revile the thought of being average or even, (gasp/shudder) ordinary.

A favourite litmus test of mine for average is the driver question: do you consider yourself to be an above average/ average/below average driver? One of the more fascinating quirks of human psychology is that virtually everyone – no matter what their driving history – considers themselves to be an above average driver. A quick Google search reveals a number of studies that support this.

One of them was done back in 1980 by a Swedish psychologist named Ola Svenson. In two different sessions, he asked 81 American college students and 80 Swedish graduate students to rank their driving ability among their peers. The results were striking: 88% of the Americans and 77% of the Swedes ranked themselves in the top half when it came to driving safely. When they were asked to rank their driving skill, 93% of the Americans said they were better than average, compared to 69% of the Swedish students. This particular study was one of several others that proved the same thing – people tend to overestimate their own abilities. One of them showed that 90% of college professors thought they were above average teachers, while another found that, out of 800,000 high school students, only 1% thought their social skills were below average.

It bemuses and intrigues me, this aversion to being average. Again, according to research, this is the result of various social, psychological, and cultural factors. One reason is the Social Comparison Theory, where people compare themselves to others to boost self-esteem, aiming to be above average. Cultural expectations, emphasising individualism and achievement, contribute to societal pressure to excel and avoid being perceived as average. Some fear mediocrity, associating it with a lack of ambition or potential, while peer and media treatment of exceptional success creates the illusion of this being the prescription for ultimate happiness.

The charismatic active manager referred to earlier further posits: Have you heard of the book, “Good to AVERAGE” by Jim Collins? Or “The 7 habits of AVERAGELY successful people” By Stephen Covey. You haven’t?
Of course not, HIGHLY successful people want GREAT, not AVERAGE. Who doesn’t want to be a WONDERFUL partner, a SUPERB friend, a FANTASTIC parent, or an AMAZING co-worker at a GREAT company? All of us, right? So why are we happy to accept AVERAGE when it comes to our investment returns? Because unless you accept average in every other aspect of life, Don’t accept AVERAGE with your savings.
(Capitals as per original post.)

 Really…is average really the worst outcome for your savings?

Have you heard of Warren Buffett? Buffett recommends that most investors put their money in a low-cost S&P 500 index fund. He even shared that his will instructs that 90% of the cash inherited by his family be invested in such a fund. But then Warren Buffett is one of the few people in the investment industry who concerns himself very little with what other people think of him. Despite being worth over US$100bn, he lives in ordinary Omaha, in the same modest home he bought 60 years ago, drives a 2014 Cadillac and breakfasts more often than is healthy at McDonald’s, never spending more than $4 per breakfast.

But perhaps Warren Buffett has become the poster boy for creating a binary perspective; either you love him, or you don’t.

Have you heard of Victor Haghani? With over three decades of experience in finance, Haghani began his career at Salomon Brothers. In 1993, he co-founded Long-Term Capital Management…remember them? His participation in the failure of LTCM was a life-changing experience that led him to question and revise much of the way he thought about the economy, markets and investing. The extensive study and discussions resulting from his research and lecturing at the London School of Economics led Haghani to conclude that savers could achieve better outcomes. In 2011, he established Elm Partners, aiming to help investors manage their savings in an efficient and disciplined manner, and to capture the long-term returns they deserve.

In this fascinating TEDx talk, Haghani poses the puzzle of the missing billionaires to help us explore how and why so many investors fail to capture even the average returns of the market. (If you think that average is easy, think again. And if you think that average can’t change the world, it can.) A commonly derided average is stock market returns.

Did you know that $1m invested passively in the US stock market in 1900 would have grown to $30bn in 2012 (when this talk was delivered).

Did you know that in the early 1900s, there were 4 000 millionaires in the US. If each of those families had followed the average childbirth rates of that era, there would now be 30 families for every one of the original 4 000 millionaire families. If each of those families had been able to match the passive return of the US stock market, this would have translated into 120 000 billionaires in 2012. However, according to Forbes magazine, there were only 400 billionaires in the US at that time and virtually none of them derived their billions from their ancestors’ millions in the 1900s.

Haghani identifies two key factors that undermine wealth: undisciplined investing and costs. Gryphon strongly supports this perspective and consequently manages a range of funds that mitigate the risks associated with emotions and fees. It would be wise for any investor to consider a broad index tracker for exposure to equities. Furthermore, imagine if the same investor could reap the benefits of the index tracker’s upside while avoiding the drawdown of equity markets. “Can’t be done!” you might think, but Gryphon’s multi-asset funds have been achieving exactly that for nearly a decade, delivering an annual return of nearly 10% p.a.

Perhaps it’s time to consider an alternative solution for those who aren’t satisfied with the status quo – an approach that combines inflation-beating returns when equity markets run (risk-on) and capital preservation when volatility prevails (risk off).  And this smart asset allocation comes at the astonishing cost of 0.3% p.a.

“The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinions but allow very lively debate within that spectrum. That gives people the sense that there’s free thinking going on, while all the time the presuppositions of the system are being reinforced by the limits put on the range of the debate.”

~ Noam Chomsky ~