Things are returning to normal in our daily routines. We are back at the office, children are back at school, politicians are slinging mud and the earth is still warming. When we take a look at our investments we see that things have not changed much from last year. South Africa is still underperforming, the USA is still very strong – especially technology companies – Europe is hanging on and China is in the doldrums. Because South Africa is very dependent on resources, the current slump in the price of commodities is hurting our mining companies. The lack of demand from China is also not helping much. We have to remember that commodities are cyclical and we might be at the bottom of the current cycle.
One of the interesting observations to be drawn from the current geopolitical problems, is that equity markets are not too worried about them. If you were an emotional investor and you swapped your equities for cash two years ago when Russia invaded the Ukraine, you would have underperformed your peers who stayed invested. We tend to forget that when we make an investment in shares, we invest in a specific company. If something happens in the world that triggers an emotion, like the start of a war or the onset of a pandemic, the majority of companies will trade down, just because our flight instinct is stronger than our fight instinct. Then, after the initial shock, the rational investor will calm down and evaluate the impact of whatever caused the negative sentiment on the companies in the portfolio and adjust where necessary.
At the end of the day we all have different time scales when it comes to our investments. If you listen to an analyst talking about the performance of a share over the last quarter, it might be negative due to a short-term anomaly. If you evaluate the longer-term fundamentals of the same company, it might show you the fantastic potential. The moral of the story is that we should keep our eyes on the horizon. There will always be some obstacle to overcome in the short term, but we have proven that we are able to do so. The more important consideration when investing is to pick the right trend and be patient with it. Currently the most profitable trend is Artificial Intelligence and it is still an infant.
