Adding to concerns for our personal and family’s safety, the past three months have been for most
of us - a financial worry – whether its our businesses or incomes being disrupted or reduced.
We have seen or heard of stock-markets collapsing and then rising again – and while I write this the
Biggest Stock index in the World ,the US S&P 500 is now gone beyond the February height it was at ,
pre- crash.
At the same time the results for SA based or referenced investors -from their traditional retirement
fund portfolios – which overwhelmingly have been Balanced Funds. In a nutshell they consist of
equity in the majority , government bonds as the next biggest segment - and other asset classes like
property. Typically they provide steady growth – as equities drive the growth and bonds provide the
income and the stability. And, in the context of Retirement Funds, about 1/3 of the asset allocation
is allowed to be offshore.
But two things have impacted on the returns that investors have obtained in these funds over the
last 5 or so years. The S A economy has ground to a virtual halt. Listed stalwarts have not seen
growth in their income and poor returns in mid- single digits – have been delivered. And if
companies share prices depend on income growth – then – shares have largely traded side-wards.
Obviously if your manager had not simply “bought the market” and differentiated his holdings from
what makes up the index then results would differ.
But the traditional driver of growth – equities – have disappointed over the last 5 or so years. And
really modest returns in the mid- single digits have prevailed. The only place to have “been” to avoid
this disappointment would have been in global equities – and local cash – or bonds.
2019 was an exceptionally good year for those who had some of that international exposure.
But the ongoing disappointing results have led many to say, “I am getting out of the market – I will
come back when things have turned.” And many who are investing in unconstrained portfolios have
done just that – dumped their equities and gone into income or cash funds. This is reflected in the
figures showing where people have been invested over the last year or so – they have moved out of
diversified funds into income or funds.
The sideway local stock-market has led to pressure has recently been on savers – and those drawing
incomes. In particular – if you were offshore in growth – you did alright – but if you were in value
you didn’t. And this is all happening in the volatile stock-market which is a rough neighbourhood to
play in. And since the “Covid crash” this has got worse. We moreover find ourselves in a unique
situation - in that both supply and demand – have dried up as the brakes went on. Furthermore,
the stock-market has been very volatile –daily movements at the 10 percent level in both directions
have happened – a very unstable environment. One can say a lot more about this – and I will in
time to come – but here are a couple of points:
a) “Headline Investing”- destroys your wealth- if you follow what the market is saying then you are
behind the curve already – and you are likely paying too much for what you are presently buying. Or,
as badly, you are selling out too cheaply. But this is precisely what is happening for many people.
b) If you are investing long term – as one should be when it comes to your retirement money( doing
this is desirable whether you are still employed or working or actually drawing an annuity or
pension) trends are not overnight things to be followed. Bill Gates has said that most people focus
too much what change brings over the short term - on the next two years – and forget about the
impact over the next 10 – which is more important. That is valuable advice. And that is what
investment managers – get paid to do – traders focus on “the next 5 minutes”.
c) Simply looking at a fund price alone and saying – “it’s down” – is ‘doing nothing’. In almost every
case managers have been moving money around to align the portfolio with its objectives and to
seize opportunities. But you don’t know that - unless you find out – and asking your financial
adviser this sort of question is part of this information flow.
d) Some key developed market stocks are expensive. US tech stocks have done brilliantly. But 17% of
the S&P 500 index is made up of 5 tech stock shares. Are they good companies? Yes – and very cash
robust. But are you paying too much? It is likely you are. These stocks – like Amazon – saw their
revenue grow at 384% over the period 2011 – 2018.” It’s got to be a winner you and I say – but if
we say that we are forgetting a golden rule. Price is what you and I pay, but value is what we end up
with. And if we pay too much….
e) Charlie Munger – Warren Buffett’s partner said the following which pretty well sums up where we
presently find ourselves – and headline investors should read this carefully:
“People are trying to be incredibly smart- all I am trying to do is not be idiotic, but it’s harder than
most people think”.
So what am I suggesting ?
1. To say that the days of diversified Balanced Funds are over – is wildly premature. And carries a
huge risk with it if you act on that assertion. When you are feeling that things are in freefall and you
want to pull the ripcord – stop. Find out what you are actually giving up – its 100% likely to be more
than the current price of your units or investments- Steinhoff’s and Abil’s of this world excepted.
2.Find out what your options are. Yes perhaps there are changes you can make. But make sure they
are logical – and contribute to you improving your chances of reaching your goals. Do not make
short term decisions which could be long term value destroying without the benefit of advice
3.Do not act without first consulting a Financial Planner.
I will come back to this matter and the markets again and how you access your retirement funds.
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Disclaimer:
The content above contains my general observations on an issue. No course of action of any kind, is
being recommended and no financial advice is being given.