Johannesburg — THE point I was making yesterday was that the aim in investing, whether in equities, gold bullion or gilts, is to achieve an absolute return. After all, what is the point of putting your hard- earned cash into an investment that earns a negative return?

We have also, however, to try to preserve the value of our assets. This is why, apart from holding cash for our immediate needs and for emergencies, we hold cash in our current bank accounts, in call accounts, money market funds, fixed deposits, RSA bonds or gilts.

Our nominal value of our assets is preserved, but its real value is all too often diminished as the absolute return on these assets is negative -- because of the impact of inflation and tax.

After I had filed my column, I was reminded how, when I was managing a life insurance company in Holland, I was disappointed by the performance of the fund managers. I failed to understand why, quarter after quarter, the funds did not return better than their benchmarks.

The general manager in charge of the group's in-house investment operation didn't understand my disappointment. The various fund managers were mandated to invest the funds relative to the benchmarks. Their weightings in equities were in line with the weightings of the benchmark. They could vary their own fund weightings a bit, and could invest a bit more or less in one counter or another. They also had a little flexibility on the timing of investments.

Timing was, however, constrained. It depended, for example, on cash inflows. Nor could the managers switch from equities into cash when the market was overbought -- they were mandated to be fully invested into, say, equities in an equity fund and bonds in a bond fund. Towards the end of 1989, and after an acrimonious quarterly meeting, I invited the general manager to dinner, and, with his agreement, I asked Jean to join us.

The main disagreement at the meeting had to do with the heavy weight in Japanese equities in the global equity fund. My view was that the Nikkei (the Tokyo market index), which was booming, was out of line with investment fundamentals -- simply the investment flavour of the month. He disagreed vehemently on the fundamentals -- the market, he argued, couldn't be wrong.

I hoped that Jean could convince him that the technical indicators might dent his confidence.

The Nikkei's index was then around 3473900. The market's price-earnings ratio was astronomically high. Jean's charts, unfortunately without data for volumes, pointed to a collapse in the near term and little prospect for future medium- to long-term growth. The general manager dismissed all this as crystal-ball piffle.

The Nikkei peaked at a high of close to 3990000 within a month or so after the dinner, before collapsing. At the end of 1995, it was down to around 2000000 and at Tuesday's market close it was 940158, about a quarter of its value at its peak -- a 75% negative return over two decades.

Perhaps the global fund, if it still exists, performed better than its benchmark, but only if it had moved out of Japan.

I hope this bit of history is useful to you -- it's certainly been valuable to me.