The Investment Roller Coaster Ride
- April 9, 2018
- Posted by: Activ8 Capital Management
- Category: Investment
World equity markets have recently experienced unprecedented volatility, and the JSE has been no exception. On the 6th April 2017 the JSE All Share value was at 52,853, on 6th April 2018 it was at 55,761. This reflects a 12 month return of 5,5% when cash would have given you at or around 7%. The chart below tracks the JSE All Share index over the last 12 months.
However, this does not tell the full story. The low point for the last 12 was 50,831 and the high point was 61,684. If you had the foresight or good fortune to buy at the bottom at sell at the peak, your return would have been an excellent 21,35%. It is nigh impossible to foretell highs and lows. Human nature often leads us to do the opposite, buy at the peaks and sell out of fear at the lows.
It is important to remember that the JSE All Share returns are the average of all the listed shares on the exchange. There would been shares that have gone down and shares that have risen by more than the average.
What lessons can current and potential investors learn from the last 12 months?
- The JSE and South Africa is not an island. The JSE and its underlying sectors and shares will have a similar return experience to world macro financial and economic factors. The recent actions of the USA and China over the potential trade war that may develop have had negative impact on all stock exchanges. For the last 3 months the JSE All Share (Blue) and the S&P500 (Green) have very closely tracked each other.
- It takes strong nerves and a high risk strategy to only pick a few shares for your portfolio and take big bets that they and the sectors in which they operate will outperform. The sorry tale of Steinhoff over the last year has been well documented.
- Attempting to time the market and pick the highs to sell and the lows to buy, is a task that is impossible. The wise investor and advisor will have an investment strategy that is applied through a well-diversified portfolio. They will then stick to the strategy and remain invested through the noise of short term volatility, with a probable a tweak or two to the portfolio.
- Investing in last year’s winners and selling the losers in your portfolio may not be the wisest course of action. There is no guarantee that a top performing share over the last year will continue to outperform. Last year’s losers may very well be low hanging fruit that are due for a rebound. Once again, solid research and a strategic plan are crucial for the long term outperformance of a portfolio.
- Use the oversold positions of some companies to either acquire them in your portfolio or top up existing holdings. The fact that certain external factors have negatively impacted the share price, does not make them overnight bad companies.
Last but not least, get professional advice and input in determining what investment strategy is best suited to you, your family and your assets. The advisory team at Activ8 would be more than willing to discuss these and other investment related matters with you.