2021 is now a month underway, with high hopes of this year being better than the last. With so much happening in the world, what should we do from an investment perspective? We have a few pointers and a live illustration of Do’s and Don’ts that will hopefully help our clients to stay watchful and wise on the markets during these volatile times.
Before making a short-term decision on a long-term investment, take time to pause and read our Do’s and Don’ts list put together by our Fairtree Invest Portfolio Managers. This list aims to help client’s make informed decisions about investment choices when markets seem to simply have gone mad.
When looking at an investment, the minute we start to hear ourselves thinking; ‘how much did I miss out on?’, ‘when can I get the next double up on value?’, we have already entered into a dangerous psychology with the way that we are looking at a particular investment. We start to look at it from a ‘FOMO’ -fear of missing out perspective. With this, all logic goes out of the window, we are no longer asking ‘what is the downside?’, ‘am I still participating?’ or ‘what is the intrinsic value?’.
Trying to chase the high-flying assets is not an investment habit one wants to get into.
• Don’t invest with a short-term mindset. I.E., don’t invest with ‘get rich quick motives’
• Don’t sell/disinvest at the bottom. I.E., when prices are cheap
• Don’t buy/invest at the top. I.E., when prices are expensive
• Don’t put your eggs in one basket (one stock, one security, one industry, one sector)
• Don’t blindly believe the huge performance numbers
• Don’t always believe that bigger is always better (bigger asset managers)
• Don’t make rash investment decisions
• Don’t chase the market
• Don’t be afraid to ask, thinking your questions are stupid
• Don’t blindly join the longest investment queue that you find, don’t blindly follow the crowd
• Above all, DON’T PANIC
• Invest long term. Time, strategy and patience is key
• Invest/buy at the bottom (when prices are cheap)
• If ever you want to sell, do it at the top or else diversify (reduce the risk) of your portfolio at the top
• Understand the drivers of huge performance numbers, what is making the numbers move
• Invest also in small boutique investment managers, they are nimble to execute and move on trades
• Ask questions even if they look stupid
• Find answers, ask why everyone is jumping on a certain investment/asset class and decide if you should follow
• Diversify your portfolio
• Stay calm
TO BUY OR NOT-TO-BUY
Let us take a look at Bitcoin for example, Bitcoin is souring higher than ever before. This is being called a ‘phantom rally’ showing a large buy-in from your institutional investors some of which are banks. Now, what are the things we need to look out for with entering into crypto currency especially in 2021?
Firstly, volatility is probably one of the largest things to watch out for. Coming off of the back of a very volatile and uncertain 2020, if investors look to Bitcoin as being the potential ‘hope of solving solvency issues’ for 2021 – they will end up exposing themselves to extremely high volatility. Bitcoin has had many peaks and dives, with little reason or warning which sent some people soaring with joy and others crying. So yes, Bitcoin has a history of aggressive bullish runs and then sudden glitches. We can see a larger embracing of bitcoin and cryptocurrency starting to take place, however at this point it could just be institutional investors causing whale effects in the market to try and recover insolvency pains that 2020 brought on. We would encourage investors to remain in well-diversified portfolios and not expose themselves to unnecessarily volatile assets out of desperation to recover losses which they may have incurred in 2020.
Like in boxing, sometimes when we have been taking hits, we want to start swinging bigger to hopefully get a hit in and gain some. Swinging bigger however, opens you up to getting hit, defenses are dropped as we launch a full-out right hook attack. A skilled boxer will see the opened vulnerability and take the open shot. Just like the stock market. At this time there are bigger, smarter fish out their who know how to make the market jump, open up a swing and cause phantom rallies – do not bite the bait.
We know what not to do, however what should we actually do? Stay in well-diversified portfolios. Get on board with cyclical recovery investing…. What is cyclical recovery? We are looking at a market US and emerging that is likely to increase in GDP this year, which is a recovery from 2020 numbers economically.
Investing in Risk Assets is on the rise as the curve starts to turn with the news of vaccines being distributed. However, in times like these investors need to be particularly alert when it comes to trying to identify opportunities in 2021. David Schawel Bloomberg Chief Investment Officer comments on the key in 2021 investment is avoiding the “Big Mistake” which is to chase the high-flying assets and hottest momentum plays. For the average investor who is not trading millions at a time, trying to pick hot stock is going to be a dangerous game in 2021. Trying to chase tech companies and high trading stocks based off of the back of 2020 numbers is not the way to go this year. You want to be looking at companies that have sustainable plans of growth with supported value. A lot of these crypto and tech-based companies rely on outlier incidents to spike company value. This is not to say abandon tech stocks entirely, but rather diversify the portfolio to include risk assets that were beaten down the past year of 2020. Emerging Markets, banks, value stocks need to have exposure in your portfolio this year for 2021.
Our Fairtree Invest Multi-Manager Funds and Tailored Bespoke Portfolios contain diversity across different markets, emerging and developed. They also diversify across the different asset classes (global equity, local equity, global property, global and local fixed income and credit), different industries and can include hedge funds to further diversify portfolios, offering protection and performance for long-term investments.
IN COVID-RELATED NEWS
Markets are looking optimistic as the biggest vaccination campaign in history has begun. The Pfizer-BioNTech vaccine has now been cleared for use across North America, Europe and the Middle East. Since the second week of January 20210, more than 12.3 million doses in 30 countries have started rolling out vaccines from Mexico to Germany, according to data collected by Bloomberg. Some other countries got a head start on vaccinations. China and Russia authorized their own shots in July and August, before they’d been fully tested. However, China is struggling to get the rest of the world to trust their vaccines. Delivering billions more will be one of the greatest logistical challenges ever undertaken. South Africa has not started as yet because they did not enter into Pharma-negotiations soon enough. Althought J & J are producing the vaccine in South Africa, it has not been concluded if South Africa and Africa will benefit from this in any way in terms of cost of vaccine or distribution.
A vaccine by AstraZeneca Plc and University of Oxford got its first major authorization, by the U.K., on December. 30. China has also cleared Sinopharm’s vaccine for general use, with the goal of vaccinating 50 million people there by early February. Dozens of countries will get vaccines through Covax, a consortium backed by the World Health Organization to ensure equitable vaccine distribution.
Bloomberg is tracking the development of nine of the globe’s most promising vaccines. A total of seven vaccines are now available for public use, in limited quantities, in dozens of countries. Most are estimating an available date of August 2021, which seems highly optimistic and only time will tell if it was realistic.
-Cephas Dube, Wessel Grobler & Kheara Lugg