What’s happening?

“There will always be bull markets followed by bear markets followed by bull markets”- Sir John Templeton.

Every few years we need to remind investors that investments have up and down cycles. Let’s take a look at the last two years as an example. Despite all the bad news unit trusts generally performed very well. Let’s look at the returns for some South African unit trust sectors for the years ending December 2021:

These were excellent performances! Clearly, the place to be invested was not the money market.

Reasons to be optimistic!

So how has this year been so far?

The Johannesburg Stock Exchange All Share Index has declined by -3.7%. This is certainly not catastrophic!

The MSCI All Country World Index has declined by -23.4% in US Dollars. This is the bargain of the decade! Investors can now buy shares and unit trust funds at +/- 23% cheaper than a year ago. Many of the local fund managers have actively been increasing their offshore holdings in global shares to take advantage of the cheap prices and diversify their portfolios.

In many ways, a decline in the market is good news. Markets need to take a “breather”. In fact, when a market declines it presents great opportunities for fund managers to select shares that are now trading at cheaper levels.

The world is made up of “up” and “down” cycles. Stock markets go up and down, once all the dust has settled markets will go up again!

Declines in the stock market are quite normal and should not be regarded with fear! We, at Kevin Mills Financial Services, have always made it abundantly clear that markets go up as well as down. From time to time all markets decline. This is quite normal and part of the dynamic of any stock market. The important thing to realise is that this is not some cataclysmic event! It is quite, quite normal.

For those investing in South African Income funds, there is good news. The forward yield expectation is that income funds should produce a return of between 8% and 9% over the next twelve months. [this is not guaranteed but is the consensus.] 

So, what should investors do? There are some investment rules that should be blindingly obvious!

• Investors should keep investing through good times and bad. The best opportunities usually occur when markets have declined, and the news is most pessimistic.
• Stick to your investment plan. Declines in the stock market are quite normal.
• Don’t buy high and sell low. This is irrational and guarantees losses! In fact, it is crazy behavior!
• Ignore all the noise in the market from people who don’t understand the market.
• 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.

“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.