Currently, making investment decisions is a bit like feeling one’s way through an unfamiliar room in the dark.
The US markets have had a very good run so that they are now everything but cheap, especially the FANG stocks. The US interest rates are rising, which will put pressure on the US Bonds and make them risky.The EU has not turned the corner yet, so perhaps this offers a cheap entry into some companies. But, the rand is perhaps too weak after the 20% drop against the dollar, which makes offshore investments rather risky for a South African investor at the moment.
Investing in South African equities is also risky owing to our political uncertainties and very weak economy, not to mention the emerging markets meltdown. Investing in emerging markets like China, Turkey or Argentina might be a good idea at the moment after the heavy sell-off we have seen over the past twelve months, but you can be sure there will be more pain to come for some of the companies, making stock selection critically important.
All in all it seems everything is uncertain at the moment. This might feel like a unique situation but we have been here before. The best solution is to stick to your investment plan if you are already invested, and to get all the paperwork ready if you are hanging onto cash. There are two things we have to remember in situations like these:
- Markets overreact in the short term but return to fair value over the longer term. This results in the losers of today being the winners of tomorrow and vice versa.
- Investing is something you do for the longer term. If you will be needing your money over the next two to three years it will be better to stay in cash. But investing in quality companies which are losers today will result in owning the winners tomorrow.
So although cash is king at the moment, a properly diversified portfolio will be king in the future. It is prudent not to rush into any investment now, but implementing a carefully thought-out investment plan is critical for future success.
