Perspectives

There exists a perception that owning property is less risky than owning shares of a publicly traded company.  This is not necessarily true.  There is not an easy answer when one determines the risk profile of a particular asset.  In this issue we would like to elaborate on some of the misconceptions that lead to branding oneself as a “conservative” or “aggressive” investor.  People tend to misunderstand the relationship between underlying risk and the return of an investment.  After all, what are all the risk components of an investment; i.e.

With the end of 2011 in sight most investors wish that 2012 will hold in something better. To say the least, total return figures (including dividends) of the JSE ALSI over the last 12 months were dismal.  One must remember that although the market turmoil creates fear amongst investors, it is a sign of change; and change brings about new opportunities and potential economic growth. A visible example is climate change – the direct result of irresponsible environmental policies.

Are the international markets going anywhere? Will the local market go somewhere? Unfortunately nobody knows what the future holds.
More appropriately the Spanish say “in a future” (en un futuro) opposed to the English which say “in the future” – just semantic trivia and maybe not the right way of expressing oneself.

Seek facts not opinions... An independent thinker and student of the financial markets said: “Seek the facts and not opinions”. It is not surprising that Dave Foord has one of the longest and most successful investment track records in South Africa.  In our previous newsletter we tried to highlight several biases as well as our human tendency to inevitably make poor decisions when our emotions take over (see the insert). Fear is equally destructive as greed...

What we should be aware of...  Though a complex subject, we thought to share a few thoughts on behavioral finance in this newsletter. Recently several articles in various publications discussed this very relevant topic. The roots of behavioral finance are in decision-making theory and psychology and explore the reasoning and motives behind some human errors when investing. In making investment decisions we are more than often our own worst enemy.