Invest with a clear mind and not a weak heart
In a previous article, I asked you to interest rates and how things may just i magine your perfect summer be different this time. holiday at your dream destination. If your investment choices are not Now imagine that same holiday based on probability, they are based on while having a bad bout of the f lu. Your eagerness or fear (emotions) and this body is aching, your head is pounding places you in danger of seriously burning and you are running a fever. I hardly need your fingers. We saw an example a few to explain why this holiday would turn weeks ago when the local share market out to be a miserable one. Why is this? declined by 2.2% between Monday, The answer is simple: your emotions are 4 May, and Thursday, 7 May, only to negatively influenced by your illness. increase by over 1% at the end of the
In my opinion, very few reports by week (8 May). This great volatility is analysts and economists ever take one of a clear indication that emotions are the most important aspects of investing running high and that they are playing into consideration: the impact of emotions a massive role in market movements. on investments. However favourable or Emotional investment can seldom well-priced an investment may appear, if be better explained than by looking at illness causes you to feel miserable, it may one of my favourite local shares, MTN. seem like a poor investment. After the company released great results
It has been a long time since this year after year, MTN’s share price phenomenon has been more obvious in doubled in the three-year period from the share market than in the last f ive September 2011 to September 2014 with years. The world economy has been ‘f lua price-to-earnings (P/E) ratio of 17, still ridden’ since 2009. With the markets not trading at a rating that is too high. booming lately, emotions are definitely Suddenly, we had the oil price collapse running high when we take a look at on our hands, and with MTN’s great current market ratings. Comments are exposure to oil-producing Nigeria due f lying around about how the markets to its presence in the country, investors are trading higher because of lower felt that this may have a very negative FTSE/JSE AFRICA TOP40 WITH 200-DAY & 50-DAY MOVING AVERAGES 27 000 26 000
Portfolio Manager at PSG Wealth effect on the company, resulting in a 24% decline in share price from levels around R260 to just under R197 only three months later.
so stupid?” “Why did I buy MTN?”
“How could I have been
You go to bed after the MTN share price had already declined by 10%, in the hopes that when you wake up the next morning, it would all have been just a nightmare.
You keep fretting about the capital you used to own.
Now that MTN has decreased by 10% since September levels, you decide to borrow money to trade yourself out of your loss, only to f ind the price dropping by a further 14%.
With prices below R200 and at nearly a quarter of your capital lost, you decide that you have had enough and sell everything.
At current levels, you would be utterly disappointed in yourself, thinking, ‘If only I hung in there a little bit longer.’
This i s where most i nvestors (including professional investors) make mistakes, as investments, especially in shares, must be done with a long-term view in mind.
One thing remains for sure: emotions and investments should not go hand in hand.