Having recently read a report from the CEO of PSG Asset Management, Anet Ahern, here are a few key pointers that our top minds in the investment sector will be carrying with them as we start 2017.
1. The best investment decisions aren’t always the most comfortable
During the first two weeks of 2016, a few of the top investment vehicles were down between 8% and 10% - the worst start to a year ever. All three indices would eventually add to their losses after a modest rebound, hitting their lows for the year in mid-February. The US market then staged the biggest quarterly reversal since 1933... from these lows!
Here in SA, our All Share index had a similar start, and rose by 16% in just four months to reach its high for the year in June. But that’s only part of the story…
It was during those panic-stricken weeks that shares such as Imperial, Glencore, Anglos and FirstRand were on sale at levels which subsequently provided returns of between 30% and 300%. What was needed to make the right decision to invest in these shares at that point?
- A calm, unemotional, measured approach.
- Deep knowledge of the companies in question.
- A solid assessment of their long term value.
- Cash to invest, whether in a separate income portfolio or as part of the asset allocation of a multi asset or flexible fund.
2. Shares in good companies don’t need a good economy to show excellent returns
It would be fair to say that economic conditions have not been ideal for the likes of Imperial. Yet, an investment in this company at the low in January 2016 has produced a return of around 70% to the end of November 2016. This is because the market is often short-term oriented and frequently extrapolates current events and conditions into the future, creating extreme under- or overvaluation.
In other words, investors often fail to take a long-term view, and they overreact to short-term pressures. This creates opportunities, as is evident with Imperial.
3. Our institutions are holding up so far
By the skin of our teeth, some will say. But the fact is that the large South African institutions which served to help us retain credibility in the eyes of the world mostly worked for us in SA when it really counted.
We had a peaceful and fair election and our finance minister managed to hang on to his independence.
The Reserve Bank delivered on their inflation targeting mandate. While there are many instances of poor delivery and corruption, we learnt that our key institutions stood the test of 2016, which was no mean feat.
4. All countries have their issues, and major events will happen
Italy’s referendum led to the resignation of their prime minister. Brits voted in favour of leaving the EU, and Trump amused, horrified and surprised the world. We saw a failed military coup in Turkey. Oil hit a 12-year low, and gold had its best quarter in 30 years. Japanese bonds traded at a negative interest rate for the first time ever while Apple sales fell for the first time in almost 13 years. While investors around the world try to get their mind around these as they happen, we try to focus on seeing the bigger picture and taking a longer-term perspective, while doing most of the work from the bottom-up.
As always, hindsight can serve to make us forget how hard it was at the time to stay calm and make the right decision.
This is only possible if you have a solid framework to start with, be it around the way you research and assess shares, or the way your long-term investment strategy is crafted.