New Year’s resolution for investors … stay calm in 2011

Stay calm in 2011. Over the next 12 months that’s got the makings of a value-enhancing New Year’s resolution for investors, according to Absa Investments, the Absa banking group’s asset management and investment arm.

A panic-free year will probably save investors money as well as their nerves, says Craig Pheiffer, General Manager (Investments) at Absa Investments.

In the early months of last year, a falling JSE and resultant jitters led many to exit the market for cash. They subsequently missed out on a solid recovery across several asset classes.

A little more resolve and a longer term view would have resulted in significant gains, says Pheiffer.

He notes: “In 2011 we expect most investors to remain in the market, if only because results in 2010 illustrated the danger of staying out of it.

“Over-commitment to cash turned out to be short-sighted, especially for those who remained on the market sidelines for much of the year.”

Many investors made a beeline for cash in February 2010 when the JSE hit new lows. Local equities then recovered and were up 23% by early December.

Just before the year-end holidays, says Pheiffer, well-diversified investors were up a total of about 17% in local equities, 13% in bonds and preference shares and up by about 29% in listed property.

Those who retreated into cash had to be satisfied with a 6,5% return as interest rates continued their slide in 2010. After tax, they struggled to beat inflation.

What about the year ahead?

“A continued spread across the principal asset classes appears to be indicated in the coming year,” says Pheiffer. “The same global factors – and uncertainties – still apply.

“But memories of the dangers of staying on the market sidelines are fresh in the minds of investors. Value can still be found, though precise sector selection and astute stock-picking are increasingly important.

“Our market is acutely sensitive to international inflows and outflows and a correction may well occur, but until then we believe most local investors will stay in the market, stay diversified and stay focused on the long term.”