Perspectives

Human memory seems short, doesn’t it? During a relatively brief career, I have experienced three major market corrections – obviously all for different reasons. Someone once said that happy families are all alike, but every unhappy family is unhappy in its own way – markets are the opposite! Markets are “happy” for different reasons. Shortly after the Dotcom crash during early 2000, I read this headline “From IPO to REPO” (from initial public offerings on the Nasdaq to assets being repossessed). The excesses of the technology boom stuck with me

Friedrich Wilhelm Nietzsche, a German philosopher and cultural critic, once said: “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule”. By the way, he is also credited for: “That which does not kill us, makes us stronger”. How appropriate during the times we live in! No matter whether you are a follower (or critic) of Biden, Malema or Bitcoin, some level of insanity seems to prevail

The word “consensus” tends to have powerful positive connotations. Consensus suggests clarity, agreement, harmony and perhaps team spirit – a blissful condition of unity. However, when mixed with decision-making within a family trust, certain situations where trustees earn a fee, all these positive perceptions may evaporate faster than the alcohol from your CV-19 sanitiser. In other words, the legal and contractual nature of trust deeds have the potential for unwanted outcomes.

In a previous letter to clients we shared some thoughts on FOMO – that is the FEAR OF MISSING OUT. The last 3 months have had some odd financial outcomes; surprises to say the least. The old saying seems to hold true: “It is time in the market and not market timing that counts”.

Some trendy choices, commodities such as Gold (Silver don’t even get a mention), perhaps a share price of Tesla that tripled, or the broad US technology sector which went on the run, could easily make us experience FOMO.  Does that urge us to get in on the action?

“Investing is half as technically complex as taught, but twice as emotionally difficult as it is assumed.” – Morgan Housel.

Of course, oversimplification could also be dangerous. Therefore simplicity does not imply that it is easy. However, when it comes to long-term investing, simple ideas and processes often triumphs over more complicated and expensive alternatives.

Some South Africans prefer the property market (direct investment in property and not listed) instead of financial investments on the stock market. You often hear that investors like to “see and touch” their investment. Individuals in this camp tend to feel there is a high degree of control over rental income and expenditure.

Iconic investor Warren Buffett does not attribute their success over the years to mere intelligence. In fact, it’s more about avoiding mistakes, they say. Charlie Munger, his long-time business partner, once said: “It is remarkable how much advantage we have gotten by trying to be consistently not stupid, instead of trying to be very intelligent”. This statement may seem obvious, but in the investment world if you ask anyone whether they’re being stupid, they’ll likely say they aren’t and never have been. Unfortunately we don’t always realise when we are making a mistake.

South African (ZA) investors often claim that they don’t need exposure to direct foreign securities, because an investment on the JSE (Johannesburg Securities Exchange) provides a sufficient Rand hedge. Perceived wisdom is that foreign revenues of these large companies protect their shareholders from South African Rand (ZAR) devaluation. We find it rather alarming that this notion is not interrogated more thoroughly. This could be a combination of implicitly trusting an advisor and/ or the unfamiliarity with the subject matter. This article aims to unpack this idea.

In layman’s terms, investors do what they do, because they want to end up with more money. How one would specifically define that objective, depends on each investor – not all of whom are rational. The best definition of successful long-term investing is probably increasing wealth in real terms, i.e. a return higher than inflation, which leaves the investor with an increase in purchasing power. Furthermore, when acquiring an asset, the key driver of its value is its potential to distribute cash flows (dividends, interest or rental distributions and proceeds on sale) to the owner.

During difficult times we often seek someone to talk to, bounce a few ideas or to gain perspective (personally as well as financially). How we go about this, obviously vary with the person and personality. Who we turn to is important.  When it gets to our health, most people would prefer a GP or specialist, i.e. someone who has the experience and shown competency in that area.  However, when it gets to financial matters, we often experience that people do not distinguish between opinions versus proper and appropriate advice.