Investment lessons from 23 years of business

The graph below shows the growth of the JSE index of all shares over the last 23 years.  Anyone that was invested back then without interfering or trying to be extra-clever, would have seen their capital grow by a very satisfactory seven-fold.  International charts reflect a similar picture:

Source: (Tradingeconomics, stockmarket)

1. The Global Financial Crisis of 2008 -2010 when major US financial intuitions failed after years of over-exuberance. The ensuing panic caused the biggest recession since the Great Depression more than 80 years ago. SA was not spared of the worldwide fallout. It took about a long two years to wash through the system.

2. The onset of the COVID 19-pandemic in early 2020. Crazy reactions worldwide again caused panic as all economic activity ground to a halt overnight the world over. The subsequent recovery was nothing short of mouth-watering, and took less than six months - emphasising the folly of panic.

3. The current drawback that started in Jan 2022 with a multiple of factors but “fuelled” by the Russian invasion of the Ukraine and the cut-off of energy and food supplies to dependent consumers. This caused inflation to spike and again the effects ring around the globe. Currently we are sitting in the eye of the storm with no obvious solution in the short term. This has been going on for 10 months already.

Major negative events, such as the following now hardly show as a ripple in the graph above, but were all seen as huge reason to panic back then:

• Y2K – when computers were supposed to freeze during the turn of midnight of 1 Dec 1999, with planes, banking systems, logistics grinding to a halt
• 9/11 attack on the World Trade Centre in 2001, prompting talks of World War III and decades of recession
• Dot-com bubble with an internet craze that picked up speed in the late ‘90s only to implode spectacularly in Oct 2002, ruining the reputation of many “experts”

For investors (and we all are, in some way or other), there are three broad options to react to these painful events:

1. React during the drawdown period to “save before it is too late”. 

This normally takes the form of selling growth assets to perceived safer havens, such as cash or guaranteed products, or income producing assets such as bonds or property.

2. Sit on our hands and trust that, as in all the cases mentioned above, this too shall pass.

A clear eye on the long-term investment goals, with the concomitant risk profile and proper asset diversification is absolutely vital to handle this.  Our role as financial advisers are at its most important during this painful phase. A downward trend on your monthly or quarterly statements is a snapshot in time. 

Only when one sells at a lower level does the perceived paper loss realise in an actual loss of capital. In the same way, if one buys a property for R3 million, and a while later someone offers you R2.8 million, you have not lost on your investment. Only if you actually sell at a lower level, do you suffer a capital loss.

3. Astute investors (and this is the really difficult part), buy into growth assets when they trade at discounted levels. 

Although most will agree, the most common mistake is to wait for rock solid confirmation that the bad times are behind us – by that time the “easy” money is already made, since the markets take a look far into the unknown future when pricing assets. When taking a closer look at the graph above, it is obvious to see that mouth-watering returns can be achieved by participating in the accelerated recovery that takes place in the months and years following an abnormal pullback. That does not mean that one must compromise a level head and a healthy dose of common sense.

At PSG Wealth, we concentrate our efforts on Options 2 and 3 above.  Through the years it has proved to be, together with providing peace of mind, an important part of what we add to our Ccients’ lives (often unknowingly).

We are always available for a discussion or a visit when it is needed. Please do not wait for an issue to become unbearable before making contact. And as always, remember that my very own portfolio, and that of my family, are in the exact same investments as yours. Also at the exact same product costs. As financial advisers, we have access to and actively use all the unrelated, regulated products and expertise available outside of PSG Wealth, both local and offshores.

All the very best – and remember, this too shall pass.  We believe in the integrity, ingenuity and the greater good available out there.

The opinions expressed in this article 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 article, no responsibility can be taken for actions taken based on information in this article. PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728