Lara Warburton of Imara Asset Management warns of the dangers for investors of paying too much attention to the news.
Do you want to avoid making bad investment decisions? If you do, a good start is to avoid too much bad news on TV; especially now that the emerging-markets crisis and embattled rand are hot news items.
This insight comes from Lara Warburton, managing director of Imara Asset Management South Africa.
As an investment professional she worries that ordinary investor-savers change their portfolios too much, incurring costs while missing opportunities.
A diet of bad news on the TV is one reason some clients become nervous and sell shares for supposedly safer options like cash, says Warburton.
She adds: “Watching bad news should come with an investment health warning attached. It can cause you to exit the share market at the very time when the biggest rise in values often occurs. Conversely, if you chase share price gains after a prolonged period of good news, you run the risk of buying when most upside has been realised.
“The lows occur when the news looks bad, and the first upward movement from the basement is often the biggest, with the best chance of boosting your net worth.”
Currently, the markets are experiencing some uncertainty and the media have highlighted several worrying developments, including:
- emerging markets in crisis and interest rate rises to protect vulnerable currencies
- rand weakness and the prospect of imported inflation
- the risk of higher fuel prices
- strike action
- consumers threatened by high levels of personal debt and higher utility bills
“You can’t blame the media,” says Warburton. “Editors know bad news grabs attention. That’s why they provide so much of it. But an investor’s perceptions can be skewed by excessive negativity.
“A more balanced approach, with a tilt toward long-term optimism often works best for the strategic investor looking to build a good nest-egg 10, 15 or 20 years down the line.”
She says positives that often go unfeatured in news broadcasts include:
- strong earnings potential at many businesses
- managerial strength across top-performing companies
- successful diversification by many businesses, resulting in penetration of African markets with high growth potential
- our youthful, growing population, creating the prospect of strong consumer demand for decades
- categorisation of many of the biggest companies on the JSE as rand-hedge stocks with potential for additional growth when our currency slides
- South Africa’s development of a diversified economy, which means we are not dependent on the performance of any single sector
Warburton notes: “Tough-minded optimists with a long-term view almost invariably grow more wealth than skittish investors.
“As wealth managers and advisers we often confront the unfortunate consequences of limited commitments to so-called risk assets like equities. In fact, over a long-enough period, well selected equities have by far the best chance of building wealth and providing for a comfortable retirement.
“The news people should focus on is that if you want to grow your investments you must grow a thick skin and shrug off the nightly diet of doom and gloom.”
Imara Asset Management is an independent, Botswana-listed investment banking group with offices in Angola, Botswana, South Africa and the UK and associate offices in Malawi, Mauritius, Zambia and Zimbabwe.