Losses yet to hurt strategic investors, says STANLIB
Negative equity markets are currently showcasing the positives of long-term, strategic investing by those who commit to a diversified range of asset classes.
Paul Hansen, Group Director, Retail Investing, at STANLIB, points out that even the steepest falls in JSE equity sectors are nowhere near cancelling out the capital appreciation of the last five years – the strategic period favoured by many strategic investors and financial advisers.
He notes: “STANLIB has always advocated diversification across asset classes rather than putting all your eggs in one basket. But even if some aggressive investors had stuck everything into one, especially vulnerable domestic equity sector, they would still be in positive territory … if they had made time their risk manager and been in the market for five years.”
From the beginning of the year until the third week in January, JSE industrials retreated by 16% while the Financial/Industrial Index was down 14%. The JSE as a whole had fallen 13%.
The listed property category was 21% off its November peak.
However, in the five years to late January, even after recent reverses, total JSE returns (dividends and capital) were still up 215% or 25.7% every year for five years – easily outstripping inflation.
The volatile resource sector had also proved itself a solid inflation-beater.
In the five years from January 26, 2003 to January 26, 2008 it gained 154% (dividends plus capital growth) or 20.4% a year.
If a canny investor had treated Iraqi War nerves in April 2003 as a buying opportunity and bought resource stocks during this period of sector weakness, there would have been a gain of 235% by late January 2008 or 28.8% a year.
“This is an important lesson,” adds Hansen. “Strategic investors magnify their gains by buying into weakness and holding for the long term.
“First, you need to be invested in a balanced portfolio and have the cash to exploit equity weakness – then you need good nerves and a good reserve of patience for at least five years.
“The Crash of 1929 required a 25-year recovery period, but in most other cases history shows the market will make solid gains after three, four or five years.”
Hansen says technical analysts who chart market movements have yet to be convinced that a bear market is taking hold in emerging markets (of which South Africa is a key component). The graphs suggest the bull market remains intact and we are merely witnessing a temporary correction.
He comments: “Time will tell whether the pessimists or optimists are right about current market weakness. Time will also reward those who stick around for the recovery.”
