Financial Planning

Sometimes doing nothing is the best thing to do

Until fairly recently, my youngest daughter competed in the South African XC mountain bike race series. For those of you who are not too familiar with the sport, the easiest way to describe this particular type of race, would be to refer to it as a mountain bike race that takes place on a track that is so gruelling that it is nearly impossible to just walk around it. The track normally ends exactly where it begins, and the number of laps is determined by the length of each track.

Anyone who has taken part in this Olympic sport, will tell you that it’s definitely not smooth sailing, not even for their supporters. On this track, there are usually two technical/water points where participants can either obtain water or food, or get some help with technical problems on their bicycles or treatment for injuries.

Because these races are so technical, I have found myself between a rock and a hard place quite a few times, because despite the fact that I used every ounce of energy to get to a technical point to assist my daughter, I arrived there just in time to see her fly by. Of course as a dad, I felt horrible, so I started running after her in an attempt to make it to the next water point, only to arrive just in time to see her fly by yet again. I don’t think it’s necessary to explain to readers that I didn’t get a big Father’s Day card that year. The truth is that although I arrived at the WRONG water point, I was still in the RIGHT place. I just should have waited there, as opposed to following the “herd” to the next water point.

I’m not saying that the herd is always wrong, but in most cases, investors end up making the same mistake as this “father of the year”. It is normal for panic to set in, especially when everyone around you starts to scramble around. A lot of investors succumb to the pressures of what’s being done by others, and stagnant growth or declines in the market aren’t making things much easier. Everyone has heard from someone else what the best investment is right now and many people follow that advice without thinking it through or doing proper research. Some are labelling Bitcoin the new gold, while for others its real gold making an epic comeback and for some, its even selling all of their current investments with the aim of investing in last year’s winners or “water points”.

But here’s the thing – it’s all about supply and demand. When a new trend hits, demand rises and the product or investment becomes more expensive. When the market becomes saturated, demand decreases and supply increases. This often leads to a decline in prices and inevitably, to investors losing money. Another problem is also that by the time investors hear about this new trend, it’s often already too late, but they invest anyway.

Over the years it has been proven that “safety in numbers” is not always the best strategy to follow in the investment world. Before you follow the herd, either because you feel pressured to do so, or just because you feel like taking chances, think about the following:

  • It costs money to constantly make changes to your portfolio. Capital gains tax is a massive consideration, and when it comes to share portfolios, you also have to consider brokerage costs and/or transaction costs. These fees, if not managed properly, can have a severe impact on the growth of your portfolio.
  • More often than not, the “advice” given by the herd, falls outside of the panicked investor’s risk profile, and that can lead to capital losses. If you feel uncomfortable with the implementation of a particular strategy in your personal portfolio, trust your gut. Rather have a conversation with your financial adviser before you make the move and be sure to discuss ALL of the options available to you, and ALL of the consequences of the suggested strategies.
  • If you have done your homework by researching a particular company, and you feel comfortable with its business model and intrinsic value, that should give you peace of mind. Its far safer to do the work and to KNOW what you are investing your money in, than to invest based on hearsay.
  • Despite what many people think, very few people become rich overnight. Investments should be seen as a long-term commitment. It is important to have realistic goals and you should keep your emotions out of your investments.

Amidst the noise, investors can end up confused. They can lose focus and make decisions that they might end up regretting at a later stage. Charlie Munger said it best when he commented on investors who constantly jump from one investment to another: “Assiduity is the ability to sit on your ass and do nothing until a great opportunity presents itself.”

If you find yourself struggling with what those around you are doing and what is happening in your portfolio, always refer back to your original investment goals. Of course instant wealth would be a bonus, but let’s stick to what’s realistic. If you start to panic, speak to your financial adviser. If you are still conflicted, get a second opinion. Just don’t let your emotions dictate your investment decisions.


The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. These opinions do not constitute advice.  This is intended as general information and does not form part of any financial, tax, legal or investment related advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for actions taken based on the information contained in this blog. Since individual needs and risk profiles differ, it is always advisable to consult a qualified financial adviser before taking action.

 

Schalk Louw
As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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