In­vest with a clear mind and not a weak heart

Finweek English Edition - - MONEY - BY SCHALK LOUW

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

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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.

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