The invisible investment currents

Imagine, for a moment, that you woke up on 1 January 2016 and decided to invest all your money in South African commodity shares. You decided to choose three big ones with a diversified portfolio of commodities, so Anglo American, Anglo Platinum and Kumba stood out. Then you left South Africa for an extended holiday in the Amazon and you have arrived back in South Africa only today – five years later. As you step off the plane you hear everybody complaining about how poorly their South African shares have performed over the last five years and you log into your stockbroking portfolio with a sinking feeling. Only to discover that your Anglo American and Anglo Plats shares are up times ten and your Kumbas up times eighteen. You are rich!

Now lets do the same exercise but with other dates: you invested on 1 January 2011 and arrived back on 1 January 2016. As you stepped off the plane people were rather happy about their investment in the South African Top 40 shares and they threw around returns like 55% over the five years. You felt confident as you logged into your share portfolio, only to find that you were almost broke. Your Anglo Americans were down 82%, your Anglo Plats down 69% and your Kumba shares down 93%.

What can we learn from this? Maybe two of the big lessons are, firstly, that commodity shares are cyclical and you cannot employ a buy-and-hold strategy. Secondly, you should not make investment decisions based on the performance of an index, but rather look underneath the hood and understand the potential of individual shares or industries.

In the Late 90s I sat in a darkened auditorium listening to a futurist called Wolfgang Grulke. He was talking about something called the internet and a search engine called Google. He was explaining that if we gave him a subject, any subject, he would be able to give us all the information regarding that subject in a matter of minutes. We were still using the Yellow Pages for our searches so we were very skeptical. He told us that we had to change the way we did business and embrace the internet because that was the future. Nobody really believed him.

At the start of 2020 someone younger than me told me that Bitcoin was a must-buy. It was trading at around $7200 and we all knew the volatile nature of Bitcoin by then. Interestingly enough, Bitcoin came into existence on 3 January 2009 and in February 2011 crossed the 1$ mark. It is currently trading at $49 000 and companies like Tesla and Paypal accept it as currency.

What we have to understand as investors is that just because we do not understand something, that does not mean it is not going to play a big role in our future. The fact that something seems to be expensive relative to something else, or historically, does not mean it is not going to double in value. Throughout history paradigm shifting events such as Covid-19 dimmed the lights in one room, just to switch on the lights in another room full of opportunities.

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