COLUMN - Four and a half years ago, BizNews ran an investment competition between Magnus Heystek and Piet Viljoen. Each was given R500,000 to invest according to their strongest conviction.
Magnus chose offshore equities, largely reflecting the view he had held for many years: South African investors needed to protect themselves against local political and economic risk by investing offshore, particularly in the US.
His clients had done very well up until then.
Piet chose South African equities. At that point, South African equities had delivered terrible returns for close to a decade. Sentiment was awful. The economy was weak. The JSE had underperformed badly, but so had all international markets except for the US.
Anyone making the case for local equities was dismissed as naïve.
If you had asked most South African investors where they wanted their money, very few would have chosen the JSE over offshore markets. Given the previous decade, most would have sided with Magnus.
And, as it turns out, most would have underperformed Piet.
The logic for offshore investing is obvious. US markets had delivered extraordinary returns, especially through technology shares. The past winner was clear. But that is exactly what made the competition interesting. How much weight should you give past performance?
Piet’s argument was not that South Africa was in great shape. His argument was that this bad news was already reflected in share prices. Local shares were cheap because everyone hated them. And when assets are priced for disappointment, you do not need everything to go right to make a decent return.
It just needs to get slightly better.
Turns out it has.
Four and a half years later, Piet’s South African portfolio has grown from R500,000 to around R809,000. Magnus’s offshore portfolio, after a difficult start and later recovery, is around R685,000. There are still six months to go, but the local portfolio is comfortably ahead.
The lesson is not that you should put all your money in South Africa. It is also not that offshore investing is wrong. The lesson is that valuation matters, starting point matters, and following past performance blindly is dangerous.
At the start of the competition, offshore was the obvious winner. But obvious investments are already priced as obvious investments. South Africa, by contrast, was priced for bad news. That does not make it comfortable, but it can make it rewarding.
Magnus acknowledged along the way that he became emotional and tried to time the market. That’s worth paying attention to. Even experienced, seasoned investors can get caught up in fear, headlines and short-term noise.
If professionals can become emotional, most investors will too. Remember, investor behaviour, not markets or volatility or crashes, is the real risk in investing.
Take the Iran war, for example. Some investors sold out of their portfolios following the headlines and the initial market decline. But then the market recovered and is currently at all-time highs. Those who sold out were badly burned. When do they get back in?
But the real cost is not just the loss on a statement. It is missed consumption of life. Missed holidays. Missed education funding. Less ability to help parents, children, or the people you love.
That is a consequence that rarely gets spoken about.
If you go all in on one view, you might shoot the lights out. But you can also get badly hurt. A diversified portfolio will never win every competition over every short period. It will always have something you wish you owned more of and something you wish you owned less of.
But that is the point.
Diversification is not designed to make you look clever over five years. It is designed to stop one big mistake from blowing you out of the water.
The better approach is not local or offshore. It is local and offshore, held in the right balance, with enough discipline to avoid chasing whatever worked best last.
That is why having a plan matters.
A plan gives you something to rely on when the headlines are loud, when the past winner looks obvious, and when your emotions are telling you to do something dramatic.
Don’t try to time the market. Don’t let emotion determine your allocation. Rely on a process, a framework, and a portfolio built for more than one possible future.
That is true in investing. It is probably true in life too.
Matthew Matthee has a wealth management business that specialises in retirement planning and investments. He writes about financial markets, investments, and investor psychology. He holds a Masters Degree in Economics from Stellenbosch University and a Post Graduate Diploma in Financial Planning from UFS. [email protected]
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