Life is a Rollercoaster
When I sit back and look at what has happened over the past six to eight weeks, I realise that we are living in a period that we will remember forever and that in all likelihood will be spoken about when we are no longer around. It feels as if we are all on a rollercoaster, both emotionally, and in terms of the markets. We have experienced the gut-wrenching first decent, we are at the bottom, hanging upside down and patiently, or not so patiently, waiting to turn around and come back up.
Who knew that a simple coronavirus could cause so much mayhem? There was a video on Twitter where Professor Hugh Montgomery explained how infectious this virus is. He describes it like this – if you get regular flu, you will infect on average 1.3/1.4 people. When those people pass it on, that would be the second time it is passed on, and once this has happened ten times, you would have been responsible for 14 cases of flu. With Covid-19, however, if you get it, you are likely to pass it onto three people on average.
Although this doesn’t sound like much, if this also happens ten times, you are responsible for infecting 59 000 people.
When you look at it this way, it is not surprising that countries have had to go into lockdown to slow this rate of infection. It is also not surprising that we have seen a drastic decline in markets both locally and globally.
John Campbell mentioned in his letter, (Reporting from the Helm,) that the JSE (prior to recent positive days) lost approximately 31% of its value. We were not alone on this, although South Africa was hit particularly harder given the unstable economic environment we were in to start with.
What makes this market crash so significant and “different” to others is that it impacted all asset classes apart from cash. Asset classes are shares, bonds, property and cash – local and offshore. When we see our money going down, it is tough not to get emotional.
So, what is essential to remember while we feel like we are left hanging at the bottom of the rollercoaster route with your feet dangling in mid-air?
- While the impact on investment portfolios is significant, we must remember that this is not likely to be a long-term event.
- While this market crash feels different, and it absolutely is, keep in mind that we felt like it was different in every prior market crash (2008, 2003, 1998 and the list goes on).
- We rely on our professional investment consultants to make any strategic decisions in our portfolios. They can do this without the emotion that we feel, which enables them to make the correct decision for long term growth.
- Since markets are down, this also means that there is a great opportunity out there for managers to take advantage. For example, shares are looking cheaper than they have in a long time. Further to this, bonds and property are also offering opportunity.
- While the recent price war in the oil industry caused extra havoc for markets globally, a low oil price is good for consumers. This could even help counter some of the effects that we may see coming out of South Africa’s downgrade to junk status.
The most important thing to remember over these periods is to stick to your investment strategy. The risk of switching to cash (safe haven) now is that you may miss out on the recovery.
While we don’t know if markets are out of the woods yet, historically when markets have recovered, a significant portion of this recovery has taken place in the first 60 days. The graph below illustrates this on four previous market crashes (1987, 1998, 2003 and 2008).
If at the bottom of the crash in 1998, for example, you had R100 at that point. Your R100 would have grown to R120 by remaining invested in the JSE All Share Index. This is a return of 20% in just 60 days, not to mention the positive gains that followed the 60 days. This is far more than an entire year worth of interest that you could earn in the money market (cash). Hence, we do not want to miss out on a recovery as the long-term effect of missing this recovery is significant.
And so, I leave you with one more graph below, that we received from Old Mutual, which represents what the JSE (Johannesburg Stock Exchange) has done since 1974.
I am sure you can identify a few memorable events along the way to get us to where we are today. The red arrows mark the market corrections and the dotted arrows, the time it took to full recovery. The general long-term trend has been upward. This period that we are in is going to mark another memorable event in our history, locally and globally. I hope this gives you some peace of mind.
Remember these positive points while you feel like you are hanging upside down at the bottom of your rollercoaster.
Kim Potgieter interviews Stephanie Bakhuis to get her insights on COVID-19, what countries are doing to adapt and what’s happening in markets globally and locally. What are the opportunities for growth beyond this?