The doldrums are noted for calm periods around the equator when the winds disappear, trapping sail-powered boats for periods of days or even weeks. There are many stories told of sailors going completely crazy while desperately hoping for wind and running low on supplies.
For investors the past three years must feel a lot like being trapped in the doldrums with the FTSE/JSE All Share Index stuck in a flat range effectively going no-where slowly.
Much like the sailor’s investors are at risk of going crazy during times like this. Long-term established investment principles are quickly forgotten as investors driven to crazy behaviour, not by the fear of running out of water, but by the fear of running out of money start looking for alternate silver bullet solutions. This might entail switching funds / managers or in the worst case being suckered into the promise of higher returns from crooked Ponzi schemes. However, the most common error investors make is the perceived security and erroneous allure of short-term higher cash returns.
86 years of data is simply tossed “overboard”, as investors jump out of equities into cash based on the poor performance of the last 3 years. This is completely irrational. At least sailors suffering from dehydration and scurvy had an excuse for their crazy behaviour.
As a long-term investment strategy “Cash is Trash” owing to its inability to generate real inflation beating returns. Investors often forget the negative tax implications of generating fixed interest, which further erodes the ability of cash to stay ahead of inflation.
In closing and sticking with my nautical analogy, selling out of equites and investing in cash is akin to jumping overboard in the middle of the ocean, instead of waiting for the winds to come and they always come.
I wish my clients and all District Mail readers a Merry Christmas. Thank you for reading the column.
Mcomm, CFP®, HdipTax
T. 021-851 3746