Jeanette Marais explains the importance of independent advice in making, and sticking to, the right choices...

For a unit trust investor, success can be as much about sticking with your choices as it is about making the right ones.

Simplistically, market participants have one of two broad mindsets. Both are completely valid of course.

• Speculators hope to sell their stock on for a higher price, preferably as quickly as possible, in order to put their capital to use in the next trade. They are focused on the marketability of what they buy.

• Investors hope for long-term returns in both income and price gains. They are focused on the risk of loss and return on capital of their underlying investments.

If you are an investor (not a speculator), once you have made a fund choice, your ability to make the most of it is dependent on whether you remain committed to the investment for long enough to benefit from the potential returns, smooth out the inevitable short-term ups and downs and let the power of compound interest increase the value of your money and compensate you for the costs of investing. These steps sound simple enough but the gap between fund returns and investor returns shows that most of us fail dismally at putting them into action.

The value-oriented investment manager?s challenge is to educate clients to remain invested for long enough to generate real long-term wealth.

When inevitable market corrections occur, many investors forget their commitment to their goals and the characteristics of their chosen investment. Unless investors remain invested for long enough to benefit from our approach, we cannot help them achieve their goals of long-term wealth creation.

Our contrarian investment philosophy has the potential to make this even harder. Allan Gray is a value-oriented investment house. This means that often we are invested in shares that are not fashionable. Frequently, our search for value has us sell stocks that keep going up, and buy stocks that keep going down, resulting in short-term underperformance. At extremes of these times we have lost the most investors, and yet these have also been the times after which those who stayed the course have outperformed by the greatest margin.

The role of financial advice

Financial advisers are not all independent, ethical, wise or diligent. But then neither are lawyers, doctors or, sad to say, investment managers. A third of our individual investors do not have an adviser linked to their investment and our fee model means that they are not charged for the advice they do not receive. However, it is clear that a good and independent adviser can make a significant difference to most individuals? investment success.

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