Amazing research has already been done on how people’s emotional decions negatively effect their financial well-being, in particular incorrect decisions at the incorrect time.
We are all human and it is natural to react according to what we hear, read in the newspaper or see for ourselves. The truth is rather that successful investors in such times make the correct decisions by identifying the opportunities in these occurences and , importantly, taking action.
It is also so that every person that sees opportunities when Eskom turns off the power, or when markets go down as was the case in January this year, or when there are internal political changes as there have been since the election of the new president of the ANC, these are the people that experience success. Those that despair and complain use so much energy in doing so that they forget or have so little energy left that they do not take advantage of the opportunity. The pain of a loss is felt twice as much as the pleasure of a gain.
I have wanted to write about this for some time, but unfortunately had to be patient and wait for the type of change that we have experienced over the past three months so that I could illustrate what is fresh in our memories.
This is a graph showing the All Share Index on the Johannesburg Stock Exchange:
What I would like to highlight is the following:
- The drop in the market that was experienced on one specific day this year was greater than was experienced on the infamous 11 September when the two aircraft flew into the “World Trade Centre” in New York.
- In my 18 years in this industry I received the fewest phone calls I ever have in similar circumstances from clients to discuss their concerns about market conditions, three calls exactly. That indicates to me that investors have a better understanding of what they are involved in, as, if we had moved all their funds into the Money Market the day after the drop, we would have completely missed the 17,82% climb that the All Share Index delivered in February.
We made adjustments in the portfolios to gain a higher exposure to cash, but to exit the markets completely as a result would have been fatal.
I would thus like to leave you with the following:
- Through not acting emotionally the greatest part of the losses have already been regained.
- Nobody can predict the markets with 100% accuracy, but we can use history, certain statistics and market information to take rational decisions.
- No asset manager can boast about being the best performer, they will always be proven wrong.
- Only time and patience are rewarded, there are no quick ways to get rich.
My advice is thus to choose a Financial Planner with a long term plan.