The Inexperienced Investor
Generation Z investors like myself are currently experiencing their first market crisis in their investment career. Although no one is immune to the emotional pain stock declines pose, the current market situation has undoubtedly been a challenging period for those inexperienced investors like myself.
However, this experience has also provided vital investment lessons, and I'm sure I will be glad I didn't sell out from the JSE in 10 years time. It's now been a year since I began my journey investing in the JSE, and I hope to share some insights other young investors like myself may relate to or learn.
Lessons on Logic, common sense and facts
Falling stock prices, red screens, negative news and sentiments continually flowing in. The global COVID-19 pandemic, coupled with recent oil price slumps hit global markets as stock markets fell into bear territory.
My initial reaction was to let panic, fear and self-doubt affect our decision making. After taking a few hours to meditate and reflect on some investment classics such as The Intelligent Investor by Ben Graham, we were reminded of the importance of 'Logic, common sense and facts.'
'The intelligent investor is a realist who sells to optimists and buys from pessimists.' – Ben Graham.
Some of our holdings such as MTN Group, Shoprite, Naspers and Cartrack, hit record lows. More specifically, MTN Group lost almost 70% of its market cap after the oil prices crashed.
As long-term investors, we shouldn't be worried about what the market does within a month; instead, our focus should be on the long term and business fundamentals.
Focus on Fundamentals
The main questions while assessing our current holdings was; (1) Do these companies have the required balance sheet to weather the storm? (2) And how severe is the impact of a global lock-down and oil price fall to its fundamentals?
We soon realised our holdings like Naspers could benefit as people stay indoors and spend more time on video games and social media. As such, we felt more comfortable and increased the size of our holdings as the stock price fell in March.
MTN Group's exposure to the Nigerian economy posed a threat to its debt profile as the devaluation of the Naira would impact its dollar-denominated debt. However, we believed the potential risks didn't justify the share price fall, hence increased our holding size when its stock price fell below R30.
Among the retailers, we favoured Shoprite because we believe its valuations are attractive and people will still buy food and other essentials during this period. We also liked its balance sheet and decided against selling off the stock.
The South African REITs was among the worst-performing in emerging markets. However, within the sector, we believe Stor-age REITs has been unduly punished for the sector's performance.
Unlike other real estates, the company has minimal exposure to malls and housing rent payments. We believe the self-storage model would do well during economic recessions as people downsize their goods.
It's critical young and enterprising investors embrace periods of heightened volatility and uncertainty and avoid making predictions over the short-term. A key lesson we learnt from more experienced investors was its very difficult to call market bottoms, hence purchase stocks in small portions as the price falls.
We believe the current JSE valuations present opportunities for the patient and long-term investor, and we now look forward to the next few quarters of 2020.
**Disclaimer: The writer owns shares in companies mentioned above, and the above information is not investment advice**