Stay glued to shares not TV news

Give up on watching the TV news, but don’t give up on the share market.

That’s the advice to long-term investors from Imara Asset Management South Africa, an asset management and financial advisory business that’s concerned about the possible impact on wealth creation of news coverage around this year’s strike season.

Managing director Lara Warburton notes: “Sentiment has already been dented by worsening industrial relations, wild-cat strikes and the prospect of confrontation with the unions. The rand’s weaker, growth is lower and many expect a glut of bad news over the strike season.

“But long-term investors should remember bad economic news doesn’t automatically mean bad stock market returns. Often, the news is dominated by crisis yet share prices rise. We’ve seen convincing proof on world markets this last five years.

“Don’t give up on equities. As far as your nest-egg is concerned, it may be better to give up on crisis-filled news broadcasts instead.”

She says jitters brought on by constant bad news can induce some saver-investors to seek the ‘safety’ of low-risk cash deposits. However, those with a long-term investment horizon face substantial lost opportunity costs after exiting equity markets, especially as inflation and taxation ensure negative returns on capital.

“The global financial crisis since 2008 caused many small, retail investors to leave equities,” she says. “But over that period the JSE reached a succession of record highs and we’ve seen a three-year bull run on Wall Street.

“Judging by the bad economic news on our TV screens, with banking scandals, sovereign wealth crises and growing unemployment, you would intuitively assume stocks must plunge, but the reverse happened.”

Warburton, a Certified Financial Planner, says worrying news in recent years induced some nervous investors to dump equities. They missed a “substantial wealth-building opportunity”. She fears a repetition as the news diet may get worse before it gets better.

Some risk-averse investors who exited the market in 2008 were now approaching retirement and were trying to recover after “five wasted years on the sidelines”.

She adds: “It’s never too late to make a difference through prudent planning, but only so much can be done when the time to retirement is short.

“If investment horizons run to five, 10, 15 years or more and there is no immediate need for capital, equities remain the best way to build wealth.

“No one knows what’s going to happen on the stock market. One thing is certain, though. Nightly news coverage of crisis after crisis is a poor indicator of future returns. If I had to give up on TV or the share market, I know which I’d pick.”