Even with a crystal ball in hand…
07 July 2019
- Even if you could correctly predict future political shocks you are not guaranteed of the impact this will have on financial markets (if at all) and how long that effect would last. Everyone suspected the US market to have a semi nervous breakdown if Trump was to be elected. But on the contrary the opposite happened. The SA markets did better during the Jacob Zuma presidency than when Nelson Mandela or Thabo Mbeki was president. Does this mean Zuma and Trump make for great leaders? I think not. The correlation between presidencies and stock market performance is weak if at all existing, same goes for currency movements.
- SA assets have received a lot of bad publicity recently. The simple truth is that the past 3.5 years have been extremely challenging regardless of where you were invested. Keep in mind that the above-mentioned table shows the TOTAL returns over the past 3.5 years. Basically, only SA bonds, SA shares and foreign shares could outperform SA inflation (after tax) and only with a very small margin. SA returns over the previous period (before Nene was fired) were completely in line (actually, even better) than the long-term expectation but is simply overshadowed by foreign assets after considerable rand depreciation over this particular cycle. People often ignore the word CYCLE to their own detriment.
- The recent past’s growth (good or bad) should never be extrapolated into the distant future. There are no guarantees that even the near future will look similar to the recent past. Diversification remains your best friend when it comes to the construction of your portfolio and one-sided bets on what the future might hold is tantamount to walking the very thin line between stupidity and bravery.
- It’s probably important to mention: The extremely poor performance of SA property has nothing to do with residential property or the expropriation of land rhetoric (again politics), but rather a combination of many other reasons such as initial valuations, poor financial performance and questionable management in the listed commercial property space.
This is not an ostrich approach to SA’s problems. We are all very well aware of the challenges and your investment strategy should take this into account. It is important, however, that we distinguish between what FEELS like the right decision and what can be supported by analysis. Never forget that FEAR is an emotion and heightened emotions have never formed a good foundation for decision making. Personally, I think that we may feel emotionally better about our country in the next year or so from now. Does this mean that SA will suddenly become a good investment destination while now it is terrible? You would do well to separate your emotions about politics and your investment decisions. The quality of your decisions is best if it is based on logical reasoning and analysis, not emotion.
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