The chambre d’hote near Saint-Étienne looked great online.

The photos showed a pool. A view down a green valley to a château.

But photos show only one perspective — what is in front of the camera, not behind it.

We were driving down to Italy for the Easter holiday. My wife selected this place as an ideal halfway stop before heading on through the Fréjus Road Tunnel toward Turin.

Perhaps the low nightly rate should have caused us to wonder. But then B&Bs can be very economic outside of the main cities in France.

About a quarter of all housing in Saint-Étienne is made up of social-housing estates. To reach the chambre d’hote, the GPS guided us through a large one.

This is the France they do not show you in the tourist brochures. Large multistorey blocks flanking the motorway on either side, planned in the ‘50s and ‘60s.


Source: Foreign Policy


A street above the estate, we reach a set of tall security gates with a CCTV camera. There is a dog inside guarding the property.

We’re let in and shown our family room — very comfortable except for the unnerving suit of armour in the hallway.

It’s nearing dinner, and by this time, we’re hungry. I ask the proprietor to recommend somewhere to eat in the town.

He shakes his head and hands me a brochure for a pizza delivery joint.

I guess he’s not recommending we leave the property.

Later that night, I hear what sounds like an explosion. Heading downstairs, I bump into the suit of armour, get quite a fright, and head back upstairs to check on the kids.

Everything is fine. The sun comes up the next day, and we get on our way.

I later read online that right-wing leader Marine Le Penn had led in the polls. Where I was staying, cars were torched through the night.

The chambre d’hote proprietor’s photos were accurate. The tourist view from our window was exactly as shown. But the view from the other side needed you to visit. And it is better to see all parts of a country.

Poorly planned housing estates also serve as a reminder that when a country marginalises poverty, unrest can flare.

This site had a major riot some years earlier. Riot police reinforcements came in with tear gas and rubber bullets.

The antidote to poverty is when people invest in their future and feel they have control over it.

The investment industry focuses on providing that service. Yet some investment products are a bit like those online photos for the chambre d’hote. They don’t show you the real picture.



The full view on fund investing


Many people swear by index funds.

They follow financial advisers in the media. They read glossy fund prospectuses. And they invest more and more with them to move with the market.

For new investors, they can be a very reasonably priced way to enter the market.

But they do have some disadvantages. Much like my French chambre d’hote, you may not be seeing the entire picture.


The most successful investors seem to prefer direct ownership


From time to time, you hear about successful investors.

I research and study them.

Nine times out of ten, they are people who spend years building a portfolio of companies they own shares in. They get to know and treat traded stocks as they would any other wealth generating asset.

When retired tax agent Anne Scheiber died in 1995, she left behind a portfolio worth $22 million. It contained large, growing, dividend-paying companies like Coca-Cola [NYSE:KO] and Pfizer [NYSE:PFE].

She was retired for a long time, leaving her modestly paying job with the US Internal Revenue Service in the mid-1940s. At that time, she had $5,000 in savings and a pension worth $3,150.

Putting the analysis skills she’d learnt at the IRS to work, she began looking for companies she wanted to own. Companies that could keep making money and share that with her as dividends.

She went through annual reports. Analysed financial statements. And began building a portfolio.

During her 50 years of retirement, she operated from a tiny apartment in New York, following her simple strategy of direct investment into stocks and shares.

Her status as a secret millionaire was not revealed until she died when her fortune was donated to Yeshiva University for a scholarship to help deserving women. The donation and its size came as a complete surprise to those who knew her.

Would she have done as well with an index fund?

Let’s take the S&P 500 Index (including dividends). Popular index funds like the Vanguard 500 Fund tracks this. The average annual return for the S&P 500 since it began as the Composite Index of 90 stocks in 1926 through 2018 is approximately 10%.

Apply this to Ms Scheiber’s pot.

  • Commence investing at retirement in 1945: $8,150
  • Compound for 50 years to death in 1995 @ 10% p.a.: $956,735

Although this calculation is rudimentary, we are still a long way from Ms Scheiber’s $22 million.

The Yeshiva University scholarship fund could have been less $20 million.


Index funds include many overvalued assets

One reason that a savvy investor like Ms Scheiber could beat the index is because she only buys things that represent value.

An index fund simply includes all companies in the index, including those that may be overpriced.


Concentrated investment can lead to higher returns


Index funds do provide low risk since they hold numerous companies across all sectors of the economy.

However, they miss out on specific focus in certain growth sectors.

For example, I have convictions on renewable energy, amongst other areas, and weight accordingly.

Since I’ve done my homework on the sector, I’m buying into businesses and an industry I have some understanding of.

No outsized returns


You get what the market returns. During a rampant bull market, this can still be a great return. But you miss capturing some of the remarkable opportunities more savvy investors may spot:

  • Netflix [NASDAQ:NFLX] 2007–2018 10,789%
  • A2 Milk [NZX:ATM] August 2015–March 2019 1,998%
  • Amazon [NASDAQ:AMZN] 2008–2018 1,946%



The mental game


Beyond this, there’s something larger at play.

If I’m going to invest my hard-earned money into a wealth-generating asset, I want to be as close to that asset as possible.

Ultimately, assets are owned in the form of titles. For example, a property deed. Although share certificates are not issued anymore, you will still have a registry statement of ownership either through your Common Shareholder Number (CSN) or via the name of the nominee (broker holder).

With most funds, you get a unit of holdings in that fund. It is blind-pooled. The fund manager becomes the CSN holder, not you. And they are the ones voting at meetings and seeing the dividends arrive.

Owning shares directly engages you with the company you part-own. Whether you do that or have someone help you select the shares, it can be a rewarding and satisfying process.

And you know what you’re getting and where you’re going.



Simon Angelo
Editor, Wealth Morning

Important disclosures

Simon Angelo owns shares in Pfizer Inc. [NYSE:PFE] via wealth manager Vistafolio.

(This article is general in nature and should not be construed as any financial or investment advice. To obtain guidance for your specific situation, please seek independent financial advice.)