It is May and the JSE is where it started the year and so is the rand against the dollar. The latest development in the divestment from South Africa is Shell. They are apparently not happy with their BEE partner and also in a worldwide drive to divest from downstream operations in countries not suited to their future plans. It must be said that divestment from certain countries or regions by multinational companies is not unusual, but South Africa has not been on the right side of Fixed Capital Investment flows over the last few years. There has been a substantial outflow of equity and bond investments from South African exchanges, predominantly by international investors.
One of the main culprits causing this exodus must be the precarious energy situation in South Africa. It is just not possible to build a profitable company without electricity. We have seen a fantastic recovery by Eskom over the last month or so but with the election later this month it is almost 100% certain that loadshedding will be back with a vengeance on May 30th.
After a stellar year for equities in 2023, a lot of people feared that the equity markets in the USA were too expensive and due for a big correction. After the most recent earnings report, it is clear that the bigger S&P500 companies are in very good shape and their elevated share prices are justified.
We have to remember that we invest our money in peoples’ creations. Over the shorter term, people are driven by emotions and emotions are unpredictable. There are wonderful examples of how these emotions, when commonly experienced by a large enough group of people, can have very irrational outcomes on certain investments. As an example, you can watch the film called “Dumb Money” on Netflix.
It is also amazing to see how brilliant some people are, and how their creations can change the world. As investors we can sometimes not distinguish between the brilliant and the dumb creations over the shorter term, but if we spend enough time listening, analyzing, discussing and evaluating, we can build a portfolio where the brilliant companies outnumber the dumb ones.
