The Investment Odyssey

The Odyssey, director Christopher Nolan’s big-budget retelling of the ancient epic poem, hit cinemas worldwide over the weekend. Dating back to the 8th or 7th centuries BCE, scholars debate whether it was written by a single author, Homer, or emerged as a collective work.

There is no doubt, however, that it is one of the most influential works of the Western literary tradition. Among other things, it introduced complex nonlinear narrative structures, philosophical questions, metaphors, and the transformative journey as a core plotline. It tells the story of Odysseus, King of Ithica, and his 10-year long journey to return home from victory in the Trojan War.

Can we tell a similar epic tale of investing? To start with, it is also a long journey, with many ups and downs. Yes, there are people who trade markets minute by minute, but our focus is on building wealth over many years, even generations. The most potent tool we have to achieve this is the equity market.

Chart 1 shows how the South African market turned R100 of today’s money into R229,000 while the US equity market turned $100 into $317,000 over the last 100 years by reinvesting the dividends. This is a period that included the Great Depression, a World War, the collapse of the British Empire, the rise and fall of the Berlin Wall, rapid technological change, and globalisation and the backlash against it. In South Africa, the last hundred years includes the rise and fall of apartheid, global isolation and reintegration, political uncertainty, and gold booms and busts. There were many hairy moments along the way. At no point did it feel inevitable that the market would continue rising, just as it doesn’t today with a shifting geopolitical order, climate change, artificial intelligence and many other things to worry about.

Chart 1: SA and US equities over 100 years

Source: LSEG Datastream, Iress, Robert Shiller

Chart 2 shows the annual return for shorter periods that align with most people’s investment horizons, this time in rands and adjusted for South African inflation. The average returns from domestic and global equities differ somewhat over these periods, but both are solid, nonetheless. A 7.2% annual real return will double your capital every 10 years, even accounting for inflation.

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