What would Rip van Winkle have guessed?

Returns: Current reality says little about what the future might hold

By Andró Griessel


Imagine for a moment that you are the character Rip van Winkle, from the short story by the American author Washington Irving and you are at a New Year’s Eve party in 2002.

Just before midnight, a fairy is about to hand you a potion which will knock you out for 20 years just like Rip. Just before you nod off, she hands you a pen and paper and asks you to jot down your investment return predictions for the next twenty years.

What would you write down?

To assist with this mental exercise, some context around 2002 would help.

    • Thabo Mbeki is the president of South Africa, and Jacob Zuma is the deputy president.
    • The Boeremag was very active during that year and a member is arrested in Lichtenburg with weapons and explosives. In October 2002 there are 9 bomb attacks in Soweto and one in Bronkhorstspruit, for which the Boeremag accepts responsibility.
    • Mbeki claims that HIV medicine is dangerous and questions whether HIV or poverty is the real cause of AIDS.
    • The ANC holds its 51st National Conference in Stellenbosch, the heart of the so-called “white monopoly capital”.
    • Hansie Cronje passes away in June in a flying accident.
    • Over the preceding eight years, the South African stock market delivers poorer returns (10.2% per annum) than cash in the bank (13.9% per annum). Over the same period, the offshore stock market delivered returns of 18.6% per annum, even after a 42% crash in 2002.
    • Regardless of the massive strengthening of the rand of around 30% against the dollar in 2002, you are still paying R8.66/$ at the end of 2002 versus paying R3.5/$ at the end of 1994
    • The prime lending rate is 14% and inflation almost doubles in 2002 from 5.5% to 9.3%.
    • In the preceding year of 2001, Eskom was honoured by the Financial Times as the world’s best power supplier and in 2002 Eskom, ironically enough, is the joint presenter of the World Symposium for Sustainable Development.The following sentence is copied from the Eskom website: “Work has commenced at the Ingula, Medupi and Kusile power stations, but it is too late to avoid power outages as Eskom is already constrained in providing for the increased demand.

      There would need to be a rearrangement of leadership positions before calmer waters return, a line in the sand has been drawn and the organization will be restructured for a change in performance and sustainable growth”.

      The irony would be comical, had the situation not been so tragic.

    Back to your Rip van Winkle experience. Just before you dose off, you jot down a few predictions. When you open your eyes again, it is 20 years later, and it is 1 January 2023.

    The prime lending rate is 10.5% and inflation over the preceding twelve months was 6.8%. Your predictions about asset class returns (given the environment in 2002) would have been way off course, I suspect.

    Please see the below graph for the actual return of the main asset classes (all converted to rand returns) per annum for the preceding 20 years.

    What would you do if you had to do the same exercise today?

    How heavily would the Eskom crisis weigh on your mood?

    How optimistic or pessimistic would you be about the possibility of the ANC losing its grip on South Africa and how would the past 20 years, 10 years or even 1-year return figures weigh on your predictions about the future?

    My suspicion is that it would have a material impact, just as it would probably have a material impact on your own psyche and eventual decision-making ability.

    I would like to make the case, as in the past, that these external events and influences have little to no predictive power of future investment returns.

    The only trustworthy predictor of future returns that I identified, is the price that you pay for an asset today, not the historical return, the economic growth rate of a country, nor the level of unemployment, demographics, a president or what the weather is like.

    If you pay an expensive price today, your returns will most likely be disappointing and if you pay a cheap price today, then your returns should be decent. It is almost as simple, and difficult, as that.

    Forecasters who talk with great confidence about future returns from assets or asset classes (especially over the short term) should have their opinions screened with a healthy dose of scepticism. It would be beneficial to remember this when considering the next few points about how we view the investment landscape currently:

    • There is a material chance that the next ten years will look completely different than the previous ten years. Last year a structural change occurred, which changed the playing field in a meaningful manner and therefore also your probable investment outcome.
    • The foolishness to extrapolate historical returns into linear perpetuity became a reality for many investors in 2022. The assumption that the storm within some of the asset classes is something of the past and that it is safe to swim in the same sea could just result in another round of bloodied investor noses.
    • The asset prices of emerging markets would appear to be more reasonably priced (in general) than developed markets. South Africa, with all its problems, is one of them.
    • An investment style where you focus more on a company’s current reality, rather than ambitious growth expectations, could in the future perform better than opposing investment styles, after underperforming for many years.
    • Passive investments, especially offshore, which automatically provided great exposure to massive controlling companies, were difficult to beat during the last 10 years using an active management approach. This trend has already changed, and we are of the view that it will continue.
    • The behaviour of investors (more about this in another article) remains one of the leading detracting factors in investors’ actual outcomes.


    Please ensure that this is not the case in your situation and reach out for guided assistance if you suspect it is.

    All the best for the remainder of 2023.

    Andró Griessel is a certified financial planner and managing director of Woodland Wealth. Contact him at info@woodlandwealth.co.za.


    Although all possible care has been taken in the preparation of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone who intends to take any financial action based on this document is strongly advised to first consult with his/her personal financial advisor. Woodland Wealth is an authorized financial service provider with FSP no. 5966.

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