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Three positive investment surprises from 2020

Some of the best investments are made at the times of greatest discomfort, and this may well turn out to be one of those times. 
This year has reminded us that diversification, especially when combined with a long-term approach, is truly the only ‘free lunch’ in investing, says the author. Image: Supplied

It is something of a tradition to take stock at this time of the year and reflect on what has happened during the past 12 months. However, given the mixed emotions 2020 has engendered, it can be tempting to gloss over the negatives in an effort to put them behind us, and then move swiftly to how we hope next year will be different without reflecting on any positives that may have emerged this year.

Despite some of the sharpest declines we have witnessed in markets and prolonged volatility, there were some positives for patient (and bold) investors. We have always maintained that some of the best investments are made at the times of greatest discomfort, and 2020 may well turn out to be one of those times.

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At the end of a trying year, it’s worth reflecting on at least three positive investment surprises 2020 has brought us.

  1. Overflowing ‘buy’ lists as opportunities abound
    Overall index returns have been driven by a narrow subset of favourites, whose prices have continued to increase even as the rest of the market has been left behind. These exceptional conditions have laid many potential traps for unwary investors. However, they have also presented a great many opportunities to buy quality companies at below-average prices, and in years to come investors may well look back with regret at their reluctance to diversify away from the herd during this time.
  2. We have been more resilient than anticipated
    Despite the challenges the pandemic brings, life carries on. We understand some sectors (like the hospitality industry) will suffer more than others, while others like healthcare and tech are likely to benefit for some time to come. Equally important, share prices moved swiftly to discount the potential and actual business impact. This effect of the pandemic has not been evenly distributed, but we have adapted to a tentative ‘new normal’. An effective (and widely available) vaccine might speed this process up, or there may be setbacks along the way, but the world has not ended. Investors who gave up on their investments, and who have moved out of equities and into the perceived safety of cash during the initial shock of lockdown, have already missed out on a strong rebound that has seen investments regain most of their previously lost ground. Investments should not be an ‘all or nothing’ game, and this year has reminded us that diversification, especially when combined with a long-term approach, is truly the ‘only free lunch’ in investing.
  3. Some things turned out better than expected
    People are quick to point out that 2020 did not go according to plan, but they tend to forget some things turned out better than anticipated. Despite the widely-expected Moody’s downgrade in March, SA government bonds proved resilient and the rand strengthened. By late this year, there were even signs of foreign investors starting to return to our markets along with renewed interest in other emerging markets. Third-quarter GDP numbers surprised to the upside. South Africans tend to be very pessimistic, but astute investors know they should always take care to ensure they are assessing the situation fairly, and are not just falling prey to overwhelmingly negative narratives. Some of the most appealing prospects we have found have been in unloved SA Inc shares, where investors have most tended to let their emotions run ahead of them, unchecked. Positioning your portfolio for binary outcomes is dangerous, and there are advantages to having an investment manager on your side that views the market differently.

Keep a ‘bigger picture’ perspective to see the opportunities others miss

2020 has been intense, uncertain and noisy. However, despite the uncertainty, there have still been positive surprises that have seen outcomes shape up differently than most investors had expected. As we head into the new year, it’s worth reminding ourselves that we never know with credible certainty what any new year will bring. However, keeping a cool head and maintaining a bigger picture perspective helps us to overcome the risk of emotional decision-making, and also allows us to focus on exploiting the potential opportunities we find.

Anet Ahern is CEO of PSG Asset Management.

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Anet Ahearn also recommended buying Didata on a p/e of around 400 – just before the share collapsed.

She chides investors (the public) now for not buying during the lows of this year – I cannot recall that she, or other investment professionals, made that recommendation when the shares were at their lows.

Always paint themselves save after the fact.

Al moeg vi hulle stories

They all come with the “If you had bought this or that at this time” stories on New Years Eve. same old same old.

As has been mentioned this is all in hindsight, I can also tell you what you should have bought, pull up the year graphs. I can also tell you when you should have sold.

What a waste of space.

Remember Rhett Butler’s quote in Gone with the Wind – ”Frankly, my dear, I don’t give a damn”

This is what this PSG Auntie said on 7 May 2020.

”The response of the JSE has been sharp and swift. It is, remarkably, the fastest 30% decline in history, and we’ve already had some spectacular price recoveries too”

”The current market has the hallmarks of an event-driven bear market — it’s typically sharp and shorter in duration than a structural event, such as the 2008 crisis”

….and yes, the normal Asset Management rubbish/forecast/views on the Rand!

”The rand is likely to continue to be the buffer for sentiment and emerging market flows, and it could stay cheap and erratic for a while longer” The Rand, in fact, did the opposite and strengthened to USD/ZAR 14.60

and now you want us to become ”bottom pickers”?

”Top pickers and bottom pickers, become cotton pickers” my dear!

PS: Anet, maybe you should appoint me as your Dollar/Rand consultant – I seem to have lost some years in age but my Rand views have been spot on for the last two decades – ”Once a dealer, always a dealer”

Excellent article. Thank you for being positive and encouraging us to make Great Investment decisions.

End of comments.

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