Market commentators have no crystal ball and following them blindly can cost you real money.
For the first few months of last year, many commentators and analysts were telling anyone who would listen that investors had to send money offshore urgently.
Some commentators were nearly hysterical in their forecasts while others were playing on an age-old theme of Afro-pessimism that I found distasteful and inaccurate. One year later, it is worth seeing how investors profited (or not) from following those commentators.
I hope investors can learn some lessons from the last 12 months. We need to realise that market commentators (myself included) have no crystal ball and following them blindly can cost you real money. Rather use good common sense to interrogate what you are reading and rely on the laws of financial physics to help you make the right money decisions in difficult times.
The JSE was a star performer in dollars
You might be surprised to learn that the JSE beat the World stock markets in dollar terms in 2016. This is despite all our well-publicised political problems and economic headwinds. According to I-Net, the JSE returned 12.3% in dollar terms for 2016, while the World Index did 8.5%. Had you decided to send your money offshore at the start of 2016 and you invested in the World Index, your capital would be worth 13% less when counted in rands. You would have lost money because the rand strengthened by far more than the world markets grew. Had you remained invested in the JSE, you would have made a tiny gain of 2.6%. More to the point, you would have been more than 15% better off than those who sent their money out in January 2016.
Many commentators will argue that this is only a one-year trend but I was reminded in a talk by Bruce Whitfield that this is not a short-term phenomenon. Since 1993, investors who remained invested in the JSE would have more money now when counted in US dollars than those who invested in the World Index. Not even Nenegate was enough to reverse this trend.
When should you send money overseas?
In February 2016, I wrote an article cautioning investors against panic and urged them to wait for the rand to strengthen before sending money out of the country. You can read the article here.
I don’t mind telling you that I received quite a few messages from readers asking if I needed the name of a good psychologist to cure my delusions. One or two readers even asked me if I was smoking some really good herbs! My view then as it is now, is that all normal markets eventually succumb to the forces of gravity. Mathematicians call this mean reversion and it nearly always causes markets to go back to their fair values if you are patient and able to wait long enough.
During 2016 we started telling investors to consider sending money offshore when the rand reached R13.50. We further suggested that they send their money out in tranches in the event that the rand strengthens even more. I do believe that investors (especially those who have excess capital) should have a large offshore exposure. However, decisions about offshore investments should be based on your personal circumstances and not on current events. When the rand goes haywire again, try to avoid the panic, ignore the hysterical market commentators and remind yourself about the basics of mean reversion.
-The Eastern Cape V