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Steady as she goes

Writer's picture: Tim SmithTim Smith

Updated: Oct 21, 2022



Given the current investment environment, one can be forgiven for feeling a tad disheartened and glum. After all, the JSE all share is down 6% year to date. Global markets (MSCI ACWI) are down 12.2% in Rands and 18.5% in US Dollars, year to date.


South Africa’s inflation rate is currently running at 7.6% with scope to still rise further, before even contemplating a move heading in the opposite direction. The inflation rate in the US reached 9% in July 2022, which is its highest level in 40 years. Interest rates all over the world just keep on going up and up.


The R-word (recession - which effectively means the economy moves backwards) is on everyone’s lips.


While us South African’s are more acquainted with higher inflation and interest rates, this is the first time many in the developing world are living through such a phenomenon. For added context, many developed nations are experiencing inflation at level of between 2-4 times to what they are accustomed.


Why is this important?


Well, it means that roughly a generation and a half of people in most of the developed world have never experienced the prevailing high inflation conditions. Also, more importantly it means an overwhelming majority of households and business executives don’t have first-hand experience of the tough but necessary decisions that need to be made to survive the current circumstances and thrive thereafter.


Further to this, while the COVID-19 pandemic may feel like an age ago, many households and companies still find themselves on their knees. Just when it seemed we were heading back to business as per usual, rampant inflation heaped more weight onto households and companies still trying to regain their pre-pandemic footing.


During the pandemic and the immediate aftermath, it was predicted that certain industries and businesses as we know it would be changed forever. An example of this is some countries wisely realising how susceptible they are to shortages of essential goods should their supply lines be cut for even a short period of time and consequently needing to build up such industries locally. These industries are still finding their groove in the “new normal”.


The key take away from all this can be summarised by one word – uncertainty. Strangely enough this word is often interpreted even more pessimistically than bad news. Bad news often results in a very clear plan of action. Uncertainty often presents one with more questions than answers which can in turn lead to rash decisions or analysis paralysis.


So where on earth does this leave us…


While we may not have visited this particular address before we have visited this neighbourhood many times before. Markets have always had periods of over and underperformance as depicted below.

S&P performance. Source: Ninety One


While the length and magnitude of these upswings and downswings vary and cannot not be precisely forecasted, the fact that we will have these upswings and downswings at some point in time can be forecasted with 100% accuracy.


We can fortunately take solace in the fact that while history doesn’t often repeat itself, it often rhymes. So, let us look to the rhymes of the past and glean some wisdom from the history books.


Lesson number 1 – Send your emotions on holiday

Warren Buffet who is arguably the most famous investor of all time stated that: “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”


Simply put, Warren is saying that one needs to have a sound investment plan and more importantly have the discipline to stick to the plan.


Like the stock market, our emotions are cyclical and the cycle of emotions experienced as an investor can range from pure euphoria to utter despondency (lack of hope).



Source: Human Investing


Buying and selling in line with your emotional state is one of the fastest ways to lose money. Don’t let your psychological state impact your investment decisions. Stick to your investment plan and send your stress on holiday.


Lesson number 2 – Never let a good crises go to waste

Winston Churchill is credited with saying “Never let a good crisis go to waste”. Your response might be that while that is a terrific catch phrase, what on earth does this have to do with investing?


The answer is simple, uncertainty and despondency in the markets equals opportunity. As we saw above in lesson 1, overall people tend to be overoptimistic when the market is at its peak and overly pessimistic when the market is at its trough. This over pessimistic state increases the potential of exceptional performance going forward.


Some of the best historical returns have come after the toughest years. The wake of the 2008 global financial crisis (widely considered as the second worst financial crisis that the world has ever experienced) proved to be one of the most incredible investment opportunities of the century.

Warren Buffet has alluded to the fact that “It is during hard times that the winners — and losers — get exposed. You only learn who has been swimming naked when the tide goes out.”


Asset and fund managers at the moment keep on communicating how excited they are with the amazing opportunities that exist in the market right now such as great companies trading at discount prices.


Turbulent times are simply when the foundations for exceptional returns are being laid. So take heart with each and every contribution you add to your investments during this time as each contribution is taking advantage of the current market despondency and is busy laying the foundation for your future returns.


Lesson 3 – Don’t try and be too clever

Considering the potential upside, the temptation may emerge to become too clever and to try and “time the market”. An example of this would be saying something like: “as soon as the markets starts to become more optimistic again, I will switch back into equity/growth assets".


History has taught us to be very hesitant of trying to accomplish this as we could well be punished for it. The graphs below (SA and US markets) show us that if you had missed just the 20-25 best days in a 20-year period, your return would have been approximately half or less of the return which you would have experienced if you had been invested in the market throughout this period as as such in the market on these days. It is worth noting that this period includes the 2008 global financial crisis.



Trying to time the upswing could result in you shooting yourself in your foot. Stick to the plan and don’t try and get too clever.


In Closing

Sailors of old knew a thing or two about storms and we can garner some insight from two of their catch phrases.


Steady as she goes – this command was an instruction to the helmsman (person steering the ship) to maintain his bearing (direction) despite the battering of the seas. This didn’t mean that the ship would not ebb and flow and that minor course adjustments wouldn’t be made when required, but the focus was the long-term direction required, not the short-term discomfort and anxiety.


Hold fast – during storms sailors were told to hold fast. In other words, each person should always have at least one hand holding on to the ship firmly to both maintain their balance and remain secure as their ship fought its way through the storm.


My message to you today is exactly this, while we may be currently stuck in a storm with a thunderous and gloomy horizon, fair winds and calm seas will return as long as we hold fast while we remain steady as she goes.


Regardless of market conditions, upswing or downswing, euphoria or despondency, the key to successful long-term investing is simple. One must have a sound plan in place and the discipline to implement it come what may.


I hope that this article both shed some light and convinced you of the importance of having a sound investment strategy in place which will whether the storms. It is important that you find a financial planner who assists you in crafting an investment plan tailored to your unique needs and circumstances. - Contact me today so that we can ensure that your investment planning is adequate.
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