Over the past month
global stock markets and the Johannesburg Stock All Share index has declined by
+/- 32%. Of course we are very concerned about declines in the share markets.
Investment losses are always concerning! We realise that investors
throughout the world are anxious and fearful. We are anxious too! Our
investments are aligned with those of our clients and we experience the anxiety
too. However investors do not make losses until such time as they decide to
give up and sell.
In the last week we have only had two requests to sell
out of investments. We disagreed with both these decisions. Over the years we
have been at pains to explain to clients that it is irrational to buy when the
price of an investment is high and to sell when the price of the investment is
low! Decisions investors make now will determine the outcome of their medium to
long term goals.
Amidst the turmoil and stress of the Coronavirus crisis and the financial markets crisis investors need to keep cools heads. Investors need to think clearly and make rational decisions rather than decisions based on their emotions.
Remember…
Don’t Panic! Stick to your investment plan.
Don’t buy high and sell low. This is irrational and guarantees losses! It is the worst thing that you could do!
Ignore all the “hype” and commentaries by people who really do not understand the stock markets.
“The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.” Sir John Templeton.
The world economy is seeing the
biggest crisis since the financial shock of 2008 as the risks of Coronavirus
(COVID 19) intensify across Europe and within our own country, South Africa.
This is unprecedented in history and no one knows how this is all going to end
up! Shares throughout the world have sold off sharply in the face of the
growing impact of the Coronavirus. This was compounded by the sharp drop in the
oil price.
Declining markets are
obviously of great concern to investors. We at Kevin Mills Financial Services
are very cognisant of the anxieties and real lived experiences of our clients.
Investment losses are always concerning!
We have put together a
spreadsheet that shows the percentage decline in value of some funds that one
might typically expect to find within an investment portfolio. This spreadsheet
shows the decline in value from the 2nd January 2020 to the 16th
March 2020.
“Income funds” are
constructed to provide clients with a regular, reliable and secure monthly
income which is +/- 8% per annum. Income funds are doing exactly this! Since
most income funds are not invested in shares (or only a have a very small
percentage allocated to shares) the income funds have only seen a fractional
decline in value.
Low-risk stable funds have declined by +/- 8%
Balanced Funds have
declined by 10-20%
The Johannesburg Stock Exchange All-Share index has declined by 29%
We have been in contact
with many of the fund managers over the last two week. Our interactions within
these fund managers produced some consensus opinions:
Declining markets
present attractive and exciting investment opportunities.
Although the
markets may decline further there are investment opportunities and a number of
the fund managers have begun buying shares at the lower prices albeit slowly
and with caution.
Fund managers generally
are doing their best to protect investor’s capital in the face of the worst
crisis in decades.
Investments
should be made on a long term basis and not on short term market movements.
Most of the fund
managers are rational and optimistic and are finding good value in shares at
the current prices.
So what should investors do?
Don’t Panic! Stick to your investment plan.
Don’t buy high and sell low. This is irrational and guarantees losses! It is the worst thing that you could do!
Ignore all the “hype” and commentaries by people who really do not understand the stock markets.
You have probably invested with fund managers that are rational, competent, experienced and who have spent an enormous amount of time studying the markets. Trust them!
Could anyone imagine at the start of the year that Italy would quarantine their entire country, that most schools, colleges and universities in Europe would be shut down or that America would cancel all travel between Europe and itself? The Coronavirus certainly has created a mass panic around the spread of the virus with the World Health Organisation yesterday labelling the virus a global pandemic.
All of this uncertainty
around the spread of the virus has led to a large sell-off of global and local
markets over the past week. In the attached document, Investec’s Jeremy
Gardiner provides us with his view on the virus, the market and why investors
should not make any irrational spur of the moment decisions.
Andrew Lapping, Chief
Investment Officer of Allan Gray also provides commentary on how they perceive
the current market conditions and the effect that the Coronavirus is having on
their investment portfolios. Making
sense of current market decisions
Since the start of this week, markets have declined very significantly. This is not unusual for markets.
Markets cannot go up forever!
However, as pointed out by both Jeremy and Andrew in their respective articles it is at times like these that opportunities present themselves for investors to purchase shares at attractive levels and reap the rewards when normality returns to the market.
Kevin has previously written about his concerns regarding the price of the stock market and as such he has been moving client funds into income-generating investments with very little to no exposure to the stock market. Investors in these income portfolios can rest assured that their income and investments have not been affected by the recent sell-off in local shares.
For investors invested in balanced funds the opportunity to acquire meaningful stakes in businesses at a 20, 30 or 40% discount offers the potential for long-term capital appreciation and wealth creation! Whilst markets corrections are never an easy investment period for investors to sit through, the recovery of the markets very often leads to significant outperformance for those investors who remained focused and committed to their investment strategies.
“A smooth sea never made a skilled sailor” Franklin Roosevelt
