SA investors hurt themselves more than a downgrade might

2020-02-12 13:42
Steven Nathan. (Image: Supplied)

Steven Nathan. (Image: Supplied)

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By Steven Nathan

What a year it is. Already, we’ve been on the verge of war in the Middle East, the Iranians downed a passenger jet, we’ve had the perfunctory impeachment trial of the US President (and may yet see a twist in the tale), Britain has left the European Union, and the coronavirus threatens to become a global emergency.  

In other news, Australia was ravaged by bush fires of unprecedented scale that killed an estimated one billion animals, Prince Harry resigned from the family business, and Kobe Bryant, one of the NBA’s all-time greats, died tragically in a helicopter crash.           

And it’s only February.  

If investors had been told all of this on New Year’s Eve, they might have taken a dim view of the market’s prospects in January.  And they would have been wrong. Both the S&P 500 and the JSE All-Share Index were largely unmoved by these developments.   

Four weeks ago, there was real concern that the cold war between the US and Iran would heat up; today we can barely remember what it was about, just fun and games really, until 176 civilians were shot out of the sky.

If there is a take-away from that tragedy, it’s that we need to respond rather than react to the events that impact our lives. We need to be mindful of the bigger picture and not give free rein to our immediate emotions, because that seldom works out well.

This also applies to our investments. All year long, we are alarmed by breaking news, by opinions and forecasts, by economic data points, and by big market moves. Some of it may impact in the short-term, but most of it is just noise.

There will be plenty more noise this month around the State of the Nation address this week and the Budget Speech on February 26. Expect saturation coverage and in-depth analysis, and commentary from all and sundry, but don’t expect anyone to remember any of it the following week. Don’t worry, though, because none of it is likely to affect your investments in any material way.

Two of the things that matter most to your portfolio in the short-term are the direction of US interest rates and the vacillating (risk on/risk off) sentiment towards emerging markets. What’s going on in our local economy, not so much.  We can’t predict or control these factors.

The year 2019 is a case in point.  As I note in the 10X Investments Annual Investment Review, there was plenty going on in SA last year – two quarters of economic contraction, a big fall-off in confidence, regular bouts of load-shedding, tales of financial woe out of Eskom, SAA and other SOEs, and increasingly scary forecasts about the state of our country’s finances.

The inevitable ratings downgrade from Moody’s loomed large at every turn. Internationally, investors worried about the inverted yield curve, about trade wars and a no-deal Brexit. 

And still, investors were handsomely rewarded for taking on stock market risk, both locally and internationally.  Those who reacted to the gloomy news cycle and sought the comfort of cash missed out.

That won’t always happen, of course. Sometimes bad news is bad news for the market. But if investors remain mindful of their long-term goal and time horizon, even that shouldn’t matter.

Thankfully, the things that matter most to your long-term portfolio are things you can control. They comprise: the amount you save, the type of portfolio you invest in (high, medium or low equity) and the fees you pay.

For long-term investors, the goal must be to maximise average return, not this year’s return. That is best achieved by following a sensible investment plan and having faith that, while it may not prove optimal every year, it should prove optimal across all the years.

Staying mindful of that will help you stick to the plan and keep the news cycle in perspective.

Read the full 10X Investments Annual Investment Review here

Watch a video where Steven talks about the highlights of the 2019 Annual Investment Review:



Steven Nathan is founder and Chief Executive Officer of 10X Investments.

This post and content is sponsored, written and provided by 10X Investments.

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