It’s astounding how quickly things have changed in the past few weeks. Only a month ago, few of us had heard the terms ‘flattening the curve’, ‘social distancing’, ‘asymptomatic’ or ‘herd immunity’ - yet now we analyse these and countless other measures daily.
The world is in unchartered territory. Politicians are required to make hasty decisions with extremely complex and far-reaching consequences based on imperfect information. Essentially, world leaders must sensibly trade-off the short-term health crisis with the devastating economic impact on billions around the globe – all the while knowing that every decision they make is being broadcast and analysed in minute detail (with perfect hindsight) by millions of “experts” across the globe. It’s the perfect storm.
However, as a South African investor, it feels more like a tsunami than a storm. Already our country was struggling with poor sentiment, low growth and stretched public finances, so the global health pandemic and resulting economic lockdown came at a particularly vulnerable time for us. And then, just as the South African lockdown started, Moody’s downgraded our country’s debt rating to “junk” status.
The silver lining to all of this has been the pro-active, decisive and unified leadership of President Ramaphosa, which has been in stark contrast to some of his peers in developed countries. One can only hope and pray that our country manages to prevent the broad spread of the COVID-19 virus, particularly amongst our most vulnerable citizens and that as our country emerges from this crisis, our government finds the strength to make similar tough decisions in areas such as the future management of SOE’s in South Africa.
Unsurprisingly, global and South African markets have experienced a widespread and significant sell-off which has impacted all asset classes (other than cash) and seen the Rand depreciate materially. Given all this continued uncertainty, it is completely understandable and normal for you as investors to feel anxious about the current environment and the sudden decline in the value of your investments.
However, it is more important than ever to consider any decisions you make as they will have an enormous impact on your long-term financial health.
So how can we act rationally and make sound decisions when very strong emotions may be clouding our judgement?
• Acknowledge your emotions. You may be feeling fearful and this can drive irrational behaviour. Just being aware of and naming this sentiment can help you maintain perspective. It’s also helpful to acknowledge that you are not alone. Very few people (if any of us) are immune to these emotions. Acknowledging your anxiety helps you identify and avoid those thoughts and behaviours that are irrational – like reacting to sensational news or extrapolating the current negative trends too far into the future.
• Focus on your long-term plan. This can be much easier said than done but revisiting your financial plan and understanding the facts is incredibly empowering. It helps you project a couple of years (beyond the noise) and consider the high probability that much of our lives will be back to some kind of normal. Good companies will have adapted, innovated, survived and may well be thriving, so in many ways this short-term panic creates an opportunity to buy great companies at bargain prices which should provide attractive prospective returns.
• Study historical facts and avoid sensational headlines as your sole source of the truth. Negative headlines sell and there is an abundance of those around, so it is easy to be bombarded with pessimistic outlooks and fake news. Make sure you are consuming balanced views including the incredible global resources being allocated to finding solutions to manage the crisis.
Realise that humanity has come through many crises before. We should never underestimate the resilience and ingenuity of humanity.
Currently, governments, corporates and private individuals are allocating more combined time, resources and effort than anything we have ever experienced and, while this crisis is different in certain aspects, it is easier now to imagine how people must have felt during other crises like the depths of the Great Depression, or World War II, which lasted a full six years. More recently, can you remember how stressful it was when the world financial system froze during the Global Financial Crisis?
In all these cases, the world and markets recovered - and they will recover from the COVID-19 crisis. Importantly, long-term investors have always been handsomely rewarded for patience during these events, and this time will be no exception.
• Focus on what can control. Acknowledge that however much you would like to, you cannot control market prices. Also accept that no-one can predict the future, let alone what will happen in the short-term. Instead, identify things that are under your control such as revisiting your plan; looking at where you can reduce discretionary spending; assessing whether you should rebalance your portfolio to its appropriate strategic allocation; taking advantage of tax-loss harvesting opportunities or committing to not looking at your balances too often.
• Seek advice from a trustworthy, experienced and professional financial adviser. Remind yourself that they too do not know all the answers, but they can act as a sounding board to candidly discuss your options and be your trusted behavioural coach, helping you to avoid making emotional decisions.
At Nedgroup Investments, we see it as our purpose to be your trusted partner to enable you to achieve your investment goals.
We endeavour to do this by delivering good long-term investment returns. Both our investment team and our Best of Breed™ managers are working flat out to ensure that we position your portfolios in the best possible way to both protect and grow your capital.
We will continue to try to communicate in a timely, honest, easy-to-understand and relevant manner. Over and above this newsletter, please visit our website for more information and subscribe to our podcast channels on Apple and Spotify. This is where we interview our managers to get their latest views and insights.
A reminder that we are open for business and you can deal with as per normal. If you have not yet done so, we really recommend that you register on our secure website to be able to access all your investment information and to transact with us online.
We cannot control this storm, but we can control how we react to it.
Take care and keep safe