I’m very disappointed in all you Wealthwokers.
I take a two-week break to go play tennis in Budapest and come back to find the global stock markets in chaos and the Rand sinking faster than a Proteas supporter’s hopes at a World Cup. That’s the last time I leave you guys in charge.
Jokes aside, these are trying times for South Africans. Coming back home from a buzzing Hungary – where the GDP growth is close to 5% and the unemployment rate is a measly 3.4% – it’s even more obvious how pessimistic the mood is in South Africa right now.
I have honestly never experienced the level of concern about the country that is currently being shown in both business and personal circles. In addition to the usual worries over crime, corruption and politics, it’s the country’s finances that are putting everyone into panic mode. In short, it’s starting to look like the numbers are just not adding up anymore.
The best article I have seen on this issue is by economist, Dawie Roodt.
Roodt says that even if we can somehow wave a magic wand and get rid of all the corruption and incompetence in the state and SOEs overnight, the perilous condition of the state’s finances will need an extraordinary attempt to save us from further economic collapse.
It’s quite technical but basically he is saying that the Government is spending way more than its earning from taxes – and it’s not an easy problem to fix. If it continues along this path, we will land up bankrupt.
So in the face of all this negativity, what are we as ordinary South Africans to do in order to build and protect our wealth? We can start with these three steps.
1. Don’t panic
The obvious temptation right now is to get out of equities and the Rand. While no-one knows what the future holds, I can speak from personal experience that panicking almost always leads to losses and regrets. Let me say this as plainly as possible – no-one and I mean no-one can time the markets or currencies.
According to Michael Kruger, Investment Analyst, Morningstar Investment Management South Africa, the key is to build diversified portfolios over time with a clear strategy in place.
“In so doing, you can take advantage of offshore allocations to sectors or geographic locations that are underrepresented in the local market. That way, you can diversify away from South African specific risk by allocating money to global markets which have a low correlation to our economy. You can also take advantage of allocations to foreign currencies that benefit from rand depreciation.”
He warns that there will be times when the currency appreciates, and global exposures detract from portfolio performance. Similarly, there will be times when the rand depreciates, and global exposures contribute to portfolio performance.
Basically, he’s telling us to remain patient, stay the course and avoid making investment decisions in a panic due to gloomy news headlines. As Nobel Prize winner Harry Markowitz said: “Diversification is the only free lunch in investing”.
2. Use this an opportunity to stress test your investment strategy – and your commitment to it
It’s easy to be comfortable with your investment strategy when the value of your portfolio is going up. However, it’s when things hit the skids that we have the chance to really test whether we have invested appropriately. It’s a good time to ask; Am I invested too heavily in risky assets given my age? Am I over-exposed to any one stock, currency or asset class? Am I lying awake at night stressing about how I’m going to put food on the table?
If the answer is yes, it’s a good wake-up call to re-look at your strategy and then work towards implementing it over time.
3. Stop using the current situation as an excuse for failure
I hear too many business owners, employees, investors and pretty much everyone else use the poor economic conditions as an excuse for their personal failures. Most of the time, this is simply not true.
A speaker at a recent business coaching event I attended nailed this issue by asking a room full of business owners to state the market share that each of their companies have in their respective industries. Not one said it was more than 5-10%. “So what are you blaming the economy for?” he said. “There is still a 95% market share for you to go after, so why are you moaning about a lack of opportunities?”
Rather than blaming external factors, take responsibility for your own life and think about what proactive steps you can take to improve your own situation by exploiting the opportunities that these challenges invariably present.