The first six months of this 2019 saw our local Top40 index adding some 12%, excluding dividends. It’s the best start to a year since 2013, and it’s around what one would expect for a full-year return from the market.
But there are a couple of important points to keep in mind. The first is that while this is a great start to the year, it does not feel like it. It started with load shedding, followed by the sloganeering of the May national elections and a seemingly constant stream of bad news. First-quarter GDP growth -3.2% really summed up how most of us feel.
This illustrates that the stock market is not the economy. After all, local SA Inc stocks were not the main movers so far this year. The returns so far have been from the resource stocks benefitting from increased commodity prices – most notably iron ore, gold and palladium – which stumbled early in 2019 but have recovered to all-time highs.
Sure, the S&P 500 has recorded returns of almost 17% for the first six months of 2019 and recently closed at a new all-time high. So, while investment in the JSE would have seen us richer, we’re not ‘winning’ the global returns race.
I went digging all the way back to the end of the 2008/09 financial crisis, when global markets had all fallen in a heap, and looked at the returns since then.
Locally the Top40 is up just over three-fold since March 2009, excluding dividends. Yet the S&P 500, which is experiencing the longest bull market in terms of time – as well as the longest in terms of returns (the 1991 to 2001 bull was better in terms of return) – has increased almost four-fold, excluding dividends.
This is pretty much what I expected. The US economy has been very strong post the crisis, in part helped by very low rates and aggressive quantitative easing (QE). Meanwhile, we’ve had our own issues with a captured state, resulting in a beleaguered economy and increased taxes.
There key point I am making here is that one has to focus on the real picture. Markets are often disconnected from how we are experiencing life. We need to examine the data to get the true story or we’ll fall victim to our blind spots.
It’s far too easy to tumble down the well of despondency and ‘end-of-world’ fear mongering. Sticking out your head and pointing out good news will often just get it chopped off by the bears.
We need to invest in reality, not in our personal views, fears or beliefs. Sure, the real data can be hard to decipher; it can change, and we can be wrong. But as investors we need to try and understand the bigger picture without letting our blinkers get in the way.
With all this in mind, unless South Africa is to become a failed state (and there is very little evidence to back up this theory), we could be starting a new bull market that we need to be invested in – even if just cautiously at first.
Yes, the deafening noise is telling us that we should be taking everything we can offshore, and news reports are full of how much people are supposedly shipping offshore.
But I have seen this before. In the mad scramble to get into hard-dollar cash, many investors may be missing out on great returns locally because they’re believing the doomsayers.
It is difficult to invest when emotions suggest otherwise, but as long-term investors we need to focus on the valuations, remove our emotions and make those smart, yet often hard, decisions.
Rather be buying around the dark days at the bottom than in the heady ‘everything is rocking’ days of a market top.