Get some perspective on losses

Media headlines around the world have predictably focused on the socalled “losses” for investors from recent equity market highs, but these are only “paper losses”, unless you actually decide to sell, because the markets may recover before you realise your investment, head of research Herman van Papendorp, and economist Sanisha Packirisamy, from Momentum Investments, say.

Van Papendorp and Packirisamy say the South African equity market is now 14 percent lower than its April 24 high and the United States equity market is currently 11 percent below its peak on May 21.

But these recent drops from the equity market highs actually pale into insignificance when compared with the local market’s 160-percent increase and the US market’s 180percent increase since their lows in March 2009 during the global financial crisis.

Old Mutual Investment Group’s head of MacroSolutions, Peter Brooke, says a 10-percent fall or correction in the market is a common feature of equity markets all around the world. The S&P500, British FTSE 100 and Japanese Nikkei 225 have all had, on average, a 10-percent fall once annually since 1928. South Africa’s market is much in line with this global trend, with corrections averaging 12.5 percent.

Tamryn Lamb, the head of client servicing for Orbis, Allan Gray’s offshore sister company, says some perspective is useful when headlines are constantly fearful.

She says earlier this year the Greek crisis was making headlines and yields on 10-year Greek bonds spiked to 18 percent. They are now around nine percent – the same level as a few months and a few thousand headlines ago.

“If you slide a few feet down Everest, you’re still near the top of a mountain: after its slide, the Shanghai Shenzhen 300 Index is still up roughly 40 percent over the past year,” Lamb says. – Laura du Preez