September 2019 Video Newsletter

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This month, Theo and Warren provide insight into the NHI and Land Expropriation debates. Please follow the link below to see what they have to say:

A note from one of our planners:

Being a REAL investor

Internationally acclaimed Financial Planner and author of the New York Times regular feature, The Sketch Guy, Carl Richards, recently published an article which posed the question: Are you a Real Investor or a Make-Believe Investor. I highly recommend giving it a read.

It’s a pretty uncomfortable time to be a “Make-Believe Investor”. The world is a chaotic place at the moment. We’ve got a long list of serious challenges locally, but the global landscape isn’t looking much better, with trade wars, a messy Brexit, geopolitical tension, and climate change. So, what does one do? I would urge you to stick to your financial plan. It is a roadmap, designed to guide you to achieving your financial goals, and as with any road, there will be times where the gradient rises and times where it drops off; there will be bends; maybe even a few potholes – but if you keep driving, you’ll arrive at your destination.

While things around you may seemingly be falling apart, take control of the things in your life that you are able to. In a low return environment, it’s crucial to keep a handle on your spending, contribute as much as you can to your investments, keep costs as low as possible, and invest in a way that minimizes or even reduces your tax burden. Navigate through the bends and around potholes. Don’t let them send you off course.

As financial planning professionals we take pride in our education, knowledge and practical experience; but without getting to know who you are, what you value, and what drives you, our plans would be very clinical, and we wouldn’t know you well enough to guide you through difficult circumstances, whether personal or general. We have always placed great emphasis on building close personal relationships, because the better we know you, the more value we are able to add.

I’ve found that, in life, when we’re stressed, cracks begin to show. I experienced this first hand, this year, with the arrival of my twins. With little to no sleep, things like patience, self-control and always believing the best of my wife were challenged. I found elements of my character being exposed that I didn’t like, and I had to actively work to improve in those areas. The same is true as an investor. In the lean years, behavioural biases start to show and most of the time, this leads to bad decision making and unfavourable investor outcomes. Three common behavioural biases to be aware of are

Loss Aversion:
Nobel Prize winner, Psychologist and Economist, Daniel Kahneman, found that the pain of loss is twice as powerful as the pleasure of gain. One of the best things we can do to counter this bias is to check our investment values less often. Investment values fluctuate over the short-term but as you stretch out the reporting period, the return profile looks a lot smoother and the overall trajectory is positive. The following set of charts, based on a balanced asset allocation strategy, illustrates this.

(Source: FinaMetrica – Portfolio 8 – Growth (1)) 

Confirmation Bias:
It’s normal to want to be right. Confidence is also a healthy trait for success in life, generally. With investing, this can be dangerous. Confirmation bias is the tendency to seek out selective information to support our pre-existing views, whether they are positive views on a specific stock or sector or negative views on the economy as whole. Investors who get caught up in this struggle to take on objective information and opinions, often to their detriment. The most common thing that feeds this bias is financial “news”. Journalists are paid to sell headlines, and negative news sells. Most investors would do well to filter what they read. Read articles written by independent market commentators, without an agenda, and if you have to read articles by people trying to sell you something, be on the over-critical side and remember that you may be inclined to want to believe things that confirm your existing views, rather than challenge them.

Recency Bias:
Recency bias occurs when, instead of looking at the big picture, investors place more emphasis on recent events and believe that the current trend will continue indefinitely. This plays out in both bull and bear markets, and if you act on this skewed view of reality, you can do serious harm to your investment portfolios. In bull markets, investors are often over-confident and invest in risky assets at, or near, the top of the cycle. In bear markets, investors tend to be quite pessimistic and often sell out at the worst time, locking in losses, and not being exposed to growth assets when they recover. The best way to navigate this is to talk through your concerns with your financial planner, remain invested in a suitably diversified portfolio, and contribute to your investments consistently. This will provide an averaging effect on the price you pay over the long-term.
In closing, remember that no matter how good the plan is, if we don’t know you well enough to keep you on track when the road becomes tough to navigate, it isn’t worth much. Plans need to be implemented, reviewed, and adhered to. We want to build a long-term, personal, relationship with you, to enable us to serve you well and keep you on the road to achieving your financial goals.

JonathanTheunissen, CFP®
FINANCIAL PLANNER

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