Sell or hold? Understand your investment
Markets throughout the world took a beating this week and the JSE was no exception, falling about 15% from its high in April, so it is not surprising we received many queries from readers and Twitter followers about selling out of their stock market investments – with some asking whether their money would be safer in property rather than shares.
When it comes to investing, it is important to look beyond the immediate chaos. One of the problems with investing in shares is they are priced every millisecond, so the volatility and price movement is extremely evident. Price movement is, in effect, a function of the price someone is prepared to pay for that share on that day.
When it comes to property, on the other hand, the pricing is far less transparent. One places a value on a property based, usually, on an estate agent’s recommendation. That recommendation would take several factors into account, including the size of the house, the area and whether the property was in a good condition or not.
That would be similar to asking an investment analyst how much they think a specific share is worth. They would look at the fundamentals of the company – including the sector it is in, its competitors, its profit and earnings – before calculating a fair price.
That price may be higher or lower than the current share price. If the analyst values it at a higher price than its current price, it would be a buy; if the analyst believed it was worth less than its share price, it would be a sell.
In the same way, if you were selling a property and someone came and gave you a cheeky offer well below what it was worth, you would be unlikely to sell unless you were in financial difficulty. If, on the other hand, you were a buyer and the seller was desperate, you could perhaps buy the home for less than it was really worth.
So you need to look past the noise and ask what your investment is really worth. If you are invested in companies such as Pick n Pay, Standard Bank and Naspers – these are some of the big companies trading in the market – do you think these businesses are at risk?
Do you believe they are a less safe investment than a residential property? Because, ultimately, what you are invested in is the long-term earnings of these companies. For as long as they are well managed, have customers and are making profit, their share price will grow over time. Are you prepared to sell them at a discounted price to someone else who will make the profit?
Personally, I like the idea that every day the chief executives and staff at those companies go to work for me, their shareholder. Every day someone transacts at their bank, pays their DStv instalment or buys groceries, I am receiving a share of that profit as an investor.
Once you understand share investing in that sense – that you are investing in companies and not “the market” – you will feel less anxious during volatile markets.
A quality company will make money over time. However, the amount of money will be determined by the length of time you hold the investment and the price you paid for it.
Considering that the price has just gone down significantly, it may be a chance for the brave to start investing. It is also a great time to be investing monthly by debit order into a unit trust or exchange-traded fund. Each time the share prices fall, you are buying more shares or more units for the same amount of money.