Don’t let fear set you up for investment failure

With South Africa in the grip of uncertain times as a result of the Sars Wars and the Moody’s misery, investors are scared.

They are seeing a lot of bad news and many feel helpless and at the mercy of events beyond their control. In times of fear, the flight instinct naturally kicks in, and can lead investors to make hasty decisions.

An example of this type of behaviour could be seen at the end of 2015. Due to the extremely pessimistic sentiment that pervaded the markets, many investors insisted on switching into cash as they watched the values of their equity investments plummet.

Then, at the beginning of 2016, some of the stocks that had led the market correction down began to significantly rerate and their prices have now improved considerably. But it’s too late for those who impatiently exited the market – they have now locked in these losses.

To compound this error, they also missed out on the significant correction in the early part of 2016.

This would have been an opportunity to recover from the lower levels their investments were at in December. The past few months have shown how swiftly markets can change – and how easy it is to get caught on the wrong side.

This is where good investment advice comes into its own.

Investors that have a well-diversified investment strategy with the appropriate level of risk given their time horizon (which is often longer than we think) will have been in the fortunate position where the different parts of their diverse portfolio all played their role – from cash to offshore assets.

It is also where intelligent asset management comes into its own.

Making the mistake of focusing on short-term performance and making panic-driven decisions can have devastating effects on long-term returns.

In turbulent times investment managers need to take a step back, do their research, debate vigorously and find the investment opportunities that can arise from uncertainty.

Investors need to continuously bear in mind that successful investing takes time and patience.

*Anet Ahern is chief investment officer at PSG Asset Management.
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