Even in times of crisis, focus on your longterm view

Rami Hajjar

The commitment to a disciplined, long-term investment strategy is key — even more so during times of crisis, when irrationality dominates.

Our approach to the Nigerian stocks we own is a case in point. As Covid struck and the oil price collapsed, the share prices of our main holdings in Nigeria, particularly the banks,

halved in naira terms. The correlation between Nigeria’s stock returns and the oil price is very high: besides being a large direct contributor to economic activity, oil represents nearly twothirds of government revenue and almost 90% of Nigeria’s foreign exchange income. Close to 50% of banks’ loan books are exposed to oil (directly or through funding the supply chain). Furthermore, a high oil price increases the supply of foreign exchange, supporting the sustainability of other non-oil sectors that rely on imports to operate, and prevents the currency from blowing out.

As the oil price collapsed to a multiyear low, many investors dismissed the Nigeria investment case, causing the share prices of Nigerian stocks, and banks in particular, to collapse. For us, this presented opportunity. A year on, this thesis has played out: the weighted average return on our Nigerian bank holdings is up 77% in dollar terms since the March 2020 lows.

The lesson may seem banal, but it holds true: even in the worst of times, stick to your longterm view.

Look for quality assets at bargain prices Sean Munsie

Even if, in the early days of the pandemic, you had correctly called the economic fallout, ultimately you would have been on the wrong side of the trade — so much so that in some areas asset prices now seem increasingly detached from the reality on the ground.

The recovery has been uneven, though, with the financial impact set to be longer lasting for some businesses, industries and countries than on others. A crucial decision that had to be made last year as markets fell was whether an asset was just caught up in the selling pressure or whether it was cheap for a reason. Investors may have only a few opportunities in their careers to buy quality assets at bargain prices. This is when the value of a thorough investment process, when married with conviction, can become evident.

Don’t be afraid to sell too soon Sandy McGregor

One of the most joyful experiences is to be on the right side of an investment mania or bubble in its early stages. The past 12 months offered great opportunities in this respect. Governments and central banks have abandoned all sense of traditional financial prudence and are spending and printing money as if there is no tomorrow. Almost by accident, modern monetary theory

Maintain a targeted asset allocation Tim Acker

Liquidity gives you options in times of crisis. In early 2020, as all asset prices fell, cash was very valuable as it could be invested in the market. It was, however, hard to know how much further markets could fall, and it was easy to find reasons why they could fall a lot more. This made it hard to know when to “pull the trigger” on moving more cash to equities.

In most cases it’s better, and less stressful, to have a targeted asset allocation rather than trying to time the market. Combining this with periodic rebalancing adds the advantage that you are automatically buying when prices are low and selling when prices are high. has become the new orthodoxy. Private savings have soared during the pandemic, and in a world of low and even negative interest rates, money is flowing into equities and property. The green and IT revolutions are dramatically disrupting a long-established economic order, and a lot of these investment flows are heading their way. Tesla and bitcoin are the poster children of this new era. Their prices have moved upwards without regard to rational investment metrics. Generally, the tech sector of the market is priced for perfection.

We are in the middle of an investment bubble. Sooner or later bubbles burst, but great fortunes can be made by selling at the top. So your instinct is to hang on for a bit longer. The danger is that bubbles pop when you least expect them to do so. Already we have seen a sudden reversal in US bond markets, which took most investors by surprise. Even the pessimists thought we could wait until the northern summer before selling. The most difficult decision is to sell too soon, but many great fortunes are based on the application of this precept.

Admit when you are wrong Jacques Plaut

Any good investor must have the ability to change their mind. Allan Gray started buying Naspers shares in 2013 after telling clients for years that we thought the share was overvalued, and after the price had increased from

R150 to R600. In this case we had been too dogmatic about not buying a share on a high p:e multiple. We had also underestimated the growth potential of Tencent, and our assessment of Naspers’s management was too pessimistic.

Changing your mind means admitting that you were wrong. This is difficult, but investors should make a habit of admitting mistakes. Of course, there is a balance between changing your mind and sticking to your guns when the price of a share moves against you. Changing your mind based on new evidence is healthy, but changing your mind because the share price has influenced your mood can be fatal. x