Keep calm and carry on

Investors who adopted this mindset over the past 12 months were handsomely rewarded for their self discipline and determination. The local stock market (FTSE/JSE ALSI) delivered a price return of 23.4% for the 12 months ended 30 November 2021. Offshore stock markets, as measured by the price movement of the MSCI World Index, delivered 22% in US dollar terms over the same period. The weakening of the rand against the US dollar over this period added an extra 5% return to the MSCI World Index investment for a total return of 27%.

While these returns are brilliant given the extreme difficulties that companies have had to overcome, it shouldn’t make investors complacent. The discovery of the Omicron variant and the panic selling that it caused across stock markets worldwide, is a case in point.

While there are innumerable guidelines that can help investors to achieve respectable long-term results, I believe three of them should be top of mind for all long-term investors, especially in the current investment environment.

Past performance is no guarantee of future results

It’s the most frequently used health warning in investment literature (with good reason) and one that is most ignored by investors.

You buy exposure to the MSCI World Index after reading that it delivered a 27% return in rands over the past 12 months. This overconfident behaviour could lead investors to buy overpriced assets that may be poised for a downturn.

It is not a given that these assets will continue to perform well. Investors must look ahead and try to assess whether the same (or other) factors can produce similar (or poorer) returns. Investors who include or remove investments based only on their past performance, especially short-term performance, will fail to generate  satisfactory long-term returns.

Stay on track with your investment plan - not someone else’s

Once you have created your long-term investment plan, don’t be steered off course by what others do. Our innate herd mentality often leads us to follow and copy others. This is particularly evident when frenetic investors pile in to buy a popular stock or asset class and drive prices to artificial and fragile highs. It is never a good idea to create or adjust your investment plan based on what others do. You should rely on your own analysis and research (or that of your investment adviser) to determine what the right course of action is for you, based on your situation and needs. To stay on track, it helps if your investment plan and goals are realistic.

Learn to block out investment noise

We are continuously bombarded with information on multiple fronts, day in and day out. This is especially true in the investment world. In our quest to keep up with all the latest news, we often forget to discern what is material information and what is extraneous noise. While it can be difficult to do, Harvard educator, speaker and author Shawn Anchor helps us to identify noise by placing it into four categories: unusable, untimely, hypothetical and distracting.

If information falls into any of these categories, it is almost certainly investment noise that will more than likely derail your investment plan and your chances of reaching your goals.

Investors’ behaviour plays a pivotal role in the ultimate success or failure of their investment plans. The British-born American economist, investor and author of The Intelligent Investor: The Definitive Book on Value Investing, Benjamin Graham, says it aptly: “The intelligent investor is a realist who sells to optimists and buys from pessimists.”

Few of us are realists; even fewer of us want to admit that our investment decisions are swayed by our emotions and behavioural biases. A skilled investment adviser knows investor behaviour and, more importantly, knows how to protect your investments from such behaviour.

Note: The opinions expressed in this document are the opinions of the writer and not necessarily those of PSG and do not constitute advice. Although the utmost care has been taken in the research and preparation of this document, no responsibility can be accepted for actions taken based on information in this article. Always remember the prudent way is to consult your portfolio manager before investing.