KNYSNA | BITOU NEWS - Investors can be forgiven for feeling a little seasick at the moment. This is particularly true for South African investors who have had to endure their fair share of volatility.
The last two years have tested our resilience through events like Covid-19, civil unrest, natural disasters, geopolitical uncertainty and war, to mention a few.
This has contributed to poor economic growth, high inflation and extreme market volatility.
It was unthinkable that US and UK inflation would exceed that of South Africa, but once again we are in territory that is unchartered for many investors. So, what should they do?
Ensure your portfolio is constructed with your needs in mind
Justin Floor from PSG Asset Management says: “We build portfolios around our investors’ needs, taking both return requirements and risk appetite into account”.
This typically includes considering whether capital growth or preservation is more important to the investor, how long they are likely to invest for, and how sensitive they will be to market volatility.
“This requires a balance between offence – capitalising on opportunities to enhance returns even when this might feel uncomfortable – and defence – reducing the risk of permanent capital loss by avoiding any one-way bets,” says Justin.
This balance between offence and defence, as well as the appropriate asset allocation between equities, bonds, cash and property, helps to build all-weather portfolios.
PSG Asset Management’s starting point is cash and they only allocate to individual securities selected from a buy list produced by their investment committees if they believe they can earn a return above what is available on cash from these investments.
These securities have successfully met their 3M requirement, being moat, management and margin of safety. Moat refers to stocks which operate in industries that have a high barrier to entry, management refers to companies that have a team that has demonstrated high levels of skill and competence, and margin of safety refers to an attractive valuation.
Justin says: “We take a through-the-cycle view (we evaluate the potential range of outcomes over the full recommended investment horizon) and diversify across both asset classes and individual securities”. They also check for unintended macro exposures, and this process helps to build robust multi-dimensional portfolios.
Resist making ill-advised changes based on short-term market movements
While it is important to keep informed, investors understandably tend to watch their portfolios more closely during times of uncertainty.
Their concern can have an adverse effect, and investors are cautioned against negating the work of their portfolio managers by not following their advice. Warren Buffet, the so-called Oracle of Omaha, suggests: “Try not to worry too much about it”.
He tells investors not to watch the market too closely during times of volatility. In fact, investors who watch the market very closely, tend to have a lower perception of their returns than investors who do not watch the market closely. It is worth taking note of Buffett’s words. He goes on to say that the money in investing is made by owning good companies for long periods of time. “Investors who buy good companies over time will see results in 10, 20 and 30 years down the road.
If they are trying to buy and sell stocks, they’re not going to have good results,” he says. This strategy has been proved true over a number of market cycles, and it is widely held that it is better to remain invested than it is to try time the market.
This aligns to the “through-the-cycle” view outlined above. This is not always easy, but try and sit on your hands if you can! While ongoing portfolio management is required over the lifetime of your investment, this should not be done in a hasty or undisciplined way or in response to short-term factors. If in any doubt, rather check in with your financial adviser first, before making any changes to your portfolio that could have far-reaching investment consequences.
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Contact with us:
PSG Plettenberg Bay
7 Gibb Street
Plettenberg Bay
PSG Knysna
Unit 1, Heads View
Old Toll Road
Knysna
The information in this document is provided as general information. It does not constitute financial, tax, legal or investment advice and the PSG Konsult Group of Companies does not guarantee its suitability or potential value. Since individual needs and risk profiles differ, we suggest you consult your qualified financial adviser, if needed. PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728.
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