“Street Notes” – January 2021
Quote of the Month
“Comparison is the death of joy.”
– Mark Twain
December proved to be another strong month for SA growth asset classes. The best returns came from the asset class that had been hardest hit over the last few years – Listed SA Property. This sector was up 13.68% during December but is still down around 35% over the year (-20.68% over 3 years) despite this strong finish. SA Equities also had another strong month finishing the final month of the year up 4.24% and 7% over the course of the year. Quite a startling recovery after the massive falls we saw in March. Two of the companies we loved to hate in the early part of the year (Steinhoff & Sasol) finished up increasing 18.18% and 10.88% respectively in the last month of 2020.
The Rand was once again dominant in December, strengthening mostly against the US$ (5.09%) and also against Sterling (2.82%) and against the Euro (2.92%). As with the SA Equity market, the Rand has staged an enormous comeback from the lows seen in March and April. Actually, on the 5th of April the rand touched lows of R19.26/$! This comeback came despite weak economic growth and further downgrades by rating agencies. This just goes to show that currencies are notoriously difficult to predict despite the sentiment that might be prevailing at the time about the respective country.
Wow, what a year 2020 has been. The fastest global market crash in history followed by the fastest recovery. Talking about speed, we have also seen the fastest production of a vaccine ever. What is key is diversification and not taking “big bets” one way or another. Being on the wrong side of one of these movements could have caused permanent losses.
Return on Life
The story of the Mexican Fisherman
This is a great little story that challenges our definition of success: Here’s the story:
There was a high-powered management consultant, who had a Harvard MBA. He was on holiday on a beach in Mexico. Early one morning he saw a local fisherman come up to the shore in his little boat. Inside the boat was a large yellow fin tuna. The consultant started talking to the fisherman and asked him, “Tell me, what you do with your life?” The fisherman responded, “Well, I go fishing early in the morning and catch a yellow fin tuna. I come back and sell it, and then go home, have breakfast or an early lunch with my beautiful wife. We chat a while. Most days we make love followed by a snooze in the afternoon. Then in the early evening, I play with the kids when they get back from school, I have dinner with my wife and then I go down to the local cantina where I play guitar, sing, and have a drink with my amigos!”
The consultant said, “I think I can help you. I have a Harvard MBA. Here’s my advice: instead of coming back so early, why don’t you stay out and fish a little longer and catch more tuna. That way you can make more money so you can buy a bigger boat.”
“Really?” said the fisherman. “Then what happens?” “Well, then you can catch even more fish. Then you can employ some of your amigos and set up a fishing fleet to catch even more yellow fin tuna!” “Wow!” the fisherman exclaimed, “And then what happens?” “Well,” said the consultant, “eventually, you can bypass the middleman completely and have your own cannery! Over the years you can build a fantastic fleet and a marvellous business!” The fisherman was fascinated by everything he was hearing: “That is brilliant; what happens next?” “Well, eventually, you’ll have thousands of employees, you will have to move to a new headquarters in New York City. Then we’ll help you do an IPO and sell the business and make millions!” “How many millions?” “Well…about 20!” “Wow! 20 million!
What happens then?” “Oh, that is the best bit,” the consultant responded. “You can then relax, retire to a little Mexican fishing village, and in the morning, you can get up and go fishing for a yellow fin tuna, and in the evening, you can play guitar and have a few drinks with your amigos!”
The moral is that sometimes we don’t realise the success we already have and how wonderful life is. So why grind harder or longer than you really need just to chase more money? Life’s too short. In the busyness of daily life, we can lose sight of the big picture and don’t spend enough time thinking about what we really want to do with the time we have left.
Use your money to help make a life instead of using your money to make more money. Money isn’t the most precious commodity of our existence … time is!!
Source: Life Centred Financial Planning – Mitch Anthony and Paul Armson
Pic of the month –
do send us your favourite inspirational images that you would like us to share.
Tip of the Month – Active and Passive Investing
As part of the investment philosophy at ABWM we subscribe to using a combination of active and passive investment management strategies for our clients. Often terminology is thrown around in our industry with the expectation that everyone knows what we are talking about. We thought we would put a brief explanation below on these 2 strategies to shine the light on these 2 terms:
Active investing places an emphasis on buying and selling where this takes the form of actively investing in equities, bonds or property with the objective of exploiting profitable market conditions. Moreover, active managers rely on methods such as fundamental and quantitative analysis, shareholder activism, technological edge and a superior understanding of the macroeconomic or geopolitical developments in order to generate market beating returns.
Passive management attempts to replicate an index or hold the market capitalisation of a certain number of stocks, where the investor has no specific view of the future risk or return prospects. Moreover, passive investing has gained market share in the investment world, where the long-term results have favoured this strategy. According to this theory, if markets are efficient then it is impossible for active managers to outperform an index. Furthermore, low transaction costs, tax efficiency and a low turnover of stocks allows passive investing an advantage to outperform active management.
Which strategy is better?
In theory a good active manager should be worth their higher fee by using their superior process to sift out the winners and include less of the losers in your investment compared to just holding the index which might be perceived as holding “yesterdays” winners.
While active managers have from time to time been able to beat the index, the last 3-5 years have been tremendously difficult for them to consistently prove their worth and add value after fees. The story for the active manager however may not be over. With more and more funds flocking to the passive, there is the potential now for certain shares to start being priced incorrectly providing the opportunity once again for the nimble active manager to prove their worth. We are confident that at present both strategies are important to incorporate in an investment solution.
If you would like more clarity, please email me directly at adamb[email protected]