Uncertainty, Risk and Probability
F&A Monthly Update | January 2022
What is the likelihood one can call important events with any degree of timing and accuracy, to the extent it could meaningfully move one’s investment portfolio? Do you know when Covid mandates will end, when loadshedding will be resolved, when Russia and Putin may advance or retreat? Beyond this, when these topical events are clearer, do you know how you may address the next impact? Calling events with any degree of accuracy is hard. Doing it repeatedly, well, I personally don’t fancy those odds. Now, of course, there will be an outlier that is able to run the tables for some time, but how about 10 years straight, 20, 30? Those are the timelines your wealth management strategy needs to be consistent over. A difficult pursuit, no doubt.
In my view, the above is not the actual challenge. You see, very little can be done to sway these external tides. Too much is outside of our control. So, what is in our control?
Your conduct, your elected lifestyle, your work ethic, who you spend time with, who you build your life with, where you live, your money management and discipline. A good investment strategy can’t recover from a poor savings strategy, and that could easily be adjusted (for retirees) to read, a poor spending strategy. Fascinatingly, the wealthiest clients I have will struggle to spend their money, and it's not because it is astronomical, it is because the exact habits, humility and discipline they exhibited in accruing their wealth, directs them away from spending it. And it's not just budgeting and counting the rands and cents. It’s finding joy in simple home cooked meals, vs. fancy restaurants, or in hiking the berg vs. visiting the Eiffel Tower, or in driving a simple and safe car vs. that Porsche or Land Rover, in a normal fence vs. a white picket.
My belief is that your wealth is between your ears, and with self-belief, discipline, knowledge and hard work, anyone can amass more money than they need. And from there, they can do what so many strive to do, they can own their time, they can say no (politely of course). Perhaps, and I hope, they will use this newfound freedom to look after someone else too.
Where are you spending your money, time and energy where you don’t need to be?
Work out how you can reduce this.
And hopefully even stop. Oh, and please do care less for the news. It will always be there, peddled by journalists desperate for clicks... some new outrage, a new Trump, Putin, Zuma, Covid. You don’t deserve to rest that uneasy!
January 2022 Update
This month's piece is compiled by Brendan de Jongh, SA Head of Research - PortfolioMetrix.
LOCAL UPDATE
South African (SA) asset classes outperformed offshore asset classes meaningfully over the month. Although the market was concerned about inflation and interest rate hikes in the developed world, the rand strengthened over the month dragging down performance of offshore assets in rands. Emerging market (EM) assets generally outperformed and South Africa was one of the better performing markets within the EM universe. SA Equities led from the front whilst SA bonds and cash provided positive returns. SA property fell slightly but materially outperformed the broader global property market.
GLOBAL UPDATE
2022 has been dominated by further concerns around rising inflation and heightened geopolitical tensions surrounding Ukraine. Inflation has risen to levels not seen in most developed markets for 30 years and, to combat this, central banks are guiding towards much faster rate rises than markets had previously expected. This has led to rising bond yields and falling bond prices. In equities, higher valuation stocks (quality/growth companies) have been hit harder than cheaper companies, partly because growth companies have more of their value based on profits far out in the future which become less valuable when compared against the certainty of higher rates now. Lastly the tension between Russia and the west over the Ukraine has driven risk-off sentiment and sent oil prices higher, which has supported valuations of cheaper energy stocks. Follow this link for more detail on events which transpired in the month.