Anyone with any kind of investment on the JSE right now is suffering from a form of Stockholm syndrome. It’s a condition that causes hostages to develop a psychological alliance with their captors as a survival strategy during captivity.
It first came into popular use in 1973 when four hostages taken during a bank robbery in the Swedish capital refused to testify in court against their captors.
It’s massively contentious, but investors seem to be facing that same sort of conundrum right now. Investors are trapped in a falling and volatile market, and wary that if they bail on their investments now, they might never be able to make up for their losses when it turns.
You need to be invested for at least five years to make a decent return, they say. Also: the value of your money can go up as well as down and that markets reward the patient. Right now, investors patience is wearing thin. Conventional wisdom says that you will do better in shares than in cash.
Not for the past five years, you haven’t.
And that is becoming a problem for the investment industry which is facing increased criticism for the fees it charges and for the returns investors have received, especially over the past five years.
While markets have rocketed in value at various points, there have also been periods of significant pullback as the JSE has seen itself fall to its lowest levels in about a year.
Neither is nearly a good enough outcome if you are looking to build up retirement savings and it’s a key factor why people fall for investment schemes, scams and flavour-of-the-month ideas like Bitcoin.
Markets require their listed companies to be able scale up and make profits over the long term in order that the promises made to investors will be realised. There are few things more depressing than being a disciplined saver, putting money away for a rainy day and to see its value destroyed by fees and inflation. That’s why companies need greater policy certainty and why policymakers need to ensure that the value of our money get the best possible protection.
Uncertain markets put people off investing in markets and means that when recoveries do come, and history shows they do, often when you least expect them, too few investors really benefit. Considering the battered state of the South African economy, the hefty tax demands being placed on its citizens in a near zero growth environment, it’s easy to feel trapped by circumstance.
You either, as the oft repeated Second World War propaganda slogan recommended:”Keep Calm and Carry On,” or you capitulate.
Consumer and business sentiment in South Africa after a brief spike in the first quarter has been in serious decline as it became clear even to the most ardent optimists that the magic wand of positive sentiment was not going to be enough to right the calamitous degradation of the economy of the past decade.
It was going to take some bloody-minded tough policy decisions coupled with serious hard work and a sense of certainty that putting in the effort and investing the capital were not going to be a total waste of time.
The best way to cope as an investor, whether directly in the market yourself or even via the company pension fund, is to get some perspective.
The short answer is no. Sure, times are tough and investment values are down, but you might be surprised by how little has changed over twelve months.
This time last year the JSE All Share Index was at about 58,000, oil at about $65 a barrel, the ZAR/$ exchange rate was at R13.73, CPI was at 4.7% and South Africa was hurtling toward a nail-biting ANC elective conference.
In the interim, South Africa has seen a change in president, heaps of changes at the top of state-owned enterprises, commissions of inquiry called into state capture and the collapse of administration at the South African Revenue Service.
Plus, globally, Britain is edging ever closer to a date with destiny as it prepares to exit the European Union, and US/China trade relations have become increasingly tenuous. There’s been a bunch of other stuff too, but those are the main factors unsettling our world right now.
Today the JSE All Share Index is a little below 52,000, 13% lower than it was this time last year and oil is at $60 a barrel, basically where it was this time last year despite a worrying spike to the mid-80’s.
The ZAR/$ exchange rate is at R13.68, but traded as strongly as R11.57/$ during the brief Ramaphoria of the first quarter to levels around R15.42 during the Rama-WTF of the third quarter. CPI is at 5.1% and South Africa is hurtling toward a nail-biting national election at some point before the end of May.
Then Bitcoin was headed rapidly toward $20,000 a pop, and today is around $4,200. Frankly, Bitcoin is about the only thing that makes sense.
Diversify your investments across asset classes and geographies. A decent financial adviser can help you do that - even if your name is not Oppenheimer or Motsepe. The value of your investments will fluctuate and it may become quite treacherous.
But sometimes you do have to succumb to the captive nature of markets and give them time to fix themselves while you keep calm and keep on carrying on.
Call it Stockholm syndrome if you will. Actually it’s called long-term investing.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.
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