Media Release: Investing Mirrors Life: How Bias affects Our Investment Decision Making

Cape Town, 8 March 2023: Are you an above average driver? If your answer is a confident ‘yes’ you may be guilty of superiority bias, and this may affect your investment decisions.

Cape Town, 8 March 2023: Are you an above average driver? If your answer is a confident ‘yes’ you may be guilty of superiority bias, and this may affect your investment decisions. Kingsley Williams, Chief Investment Officer at Satrix says asset managers are more aware than ever that biases that influence an individual’s thinking can also have a significant impact on financial outcomes.


“There are a number of biases that have been proven to impact investors’ financial decision-making and it is important for financial advisers to consider these when advising their clients,” says Williams. Satrix, South Africa’s leading provider of index tracking products is using its platform at the 2023 Investment Forum, an assembly of investment professionals taking place in Cape Town and Johannesburg in March this year, to draw attention to three biases that affect investors, especially during periods of uncertainty. 


The first, labelled superiority bias, is described by as one in which ‘people think too much of themselves without good reason’. This bias is easily demonstrated by asking audience members to raise their hands if they believe they are better than average drivers. “In this experiment, more than half of attendees usually rate themselves better than the median; an outcome that is not impossible but highly unlikely to be true,” says Williams.


The statement “I only invest in top performing funds” is an example of superiority bias in the investing world, but it worth unpacking this claim against the ‘arithmetic of active management’ concepts popularised by William Sharpe more than three decades ago. “Sharpe said that for every dollar or rand that outperforms, there is another dollar or rand that will underperform; in other words, investing is a zero sum game across all market participants, before costs,” Williams says. Although it is quite common for investors to believe that they have a process to choose winning funds, the odds are quite high those funds will produce poor performance thereafter.


The second bias that has the potential to erode investor’s returns is confirmation bias, or the practice of finding information to support your view. “Investors who suffer from confirmation bias are not prepared to consider information that contradicts their pre-existing beliefs,” explains Williams, using possible responses to the climate change issue to illustrate this bias. Someone who doubts the climate change narrative would dismiss or ignore appeals to reduce fossil fuel emissions, whereas someone who is concerned about the issue will accept the article as evidence in support of his or her belief.


“We often encounter asset managers, financial advisers and investors who hold a view that indexing will underperform an active strategy,” says Williams. “Their key argument is that active management is premised on delivering alpha and therefore this is the only way to outperform.” This illustration of confirmation does not stand up to scrutiny: the FTSE/JSE Capped SWIX index has outperformed the median active manager more often than not over a period spanning two decades.


Anchoring, or choosing a course of action because you believe it to be appropriate, is another bias worth considering. “When investors decide what their offshore exposure should be, they may be tempted to anchor that allocation at or near the regulatory limit of 45%,” Williams says. Satrix prefers a more sensible 36% exposure offshore within our Satrix Balanced Index Fund, to accommodate the currency risk that local investors face due to the rand’s volatility, among other factors. “Our balanced funds focus on the strategic asset allocation as the primary source of returns rather than trying to add value through stock selection and timing, where the odds of success are certainly not in your favour,” he says.  The results of following this approach over the long-term speak for themselves.


It is important for investors to appreciate the corrosive effect of bias on investment decision making and financial outcomes. “Index investing is a great way to side-step biases,” concludes Williams. “The strategy also offers the peace of mind of not having to deal with the angst and overheads associated with active management, including that caused by having to hire or fire an active manager.”


About Satrix 

Satrix is the leading provider of index-tracking investment products and exchange traded funds (ETFs) in South Africa, with over R160 billion* in assets under management invested in the range of ETFs, index-tracking unit trusts, life pooled and segregated portfolios that are specifically tailored for client-specific mandates or retail funds.  

It pioneered index investing in South Africa, launching the flagship Satrix 40 ETF as the first locally listed ETF in November 2000. The business services the institutional, intermediary, and individual investor markets. Satrix has proven expertise in risk management, portfolio analysis and index construction.

A core part of the Satrix purpose is to drive the democratisation of investments for all South Africans, where SatrixNOW, the no-minimum online investing platform, is a key enabler to provide access for South Africans to “Own the Market”.

Satrix holds the largest market share in the ETF industry in South Africa at nearly 32%^ and was the most successful raiser of new capital in 2022, at R3.3 billion^. Additionally, the multi-award-winning business has grown assets under management by 50% since the beginning of 2020, under some of the most challenging market conditions in history.   


*Source: Satrix, December 2022

^Source:, December 2022


Satrix Investments (Pty) Ltd is an approved FSP in term of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP’s, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.