InsuranceFundi | Is IT Time To Get Out The Sharemarket?

Is it time to get out of the sharemarket?

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“Is it time to get back into cash?”

Just yesterday I was asked to look deep into my crystal ball again.

The question on everyone’s mind is:

“The local sharemarket is wobbling. Greece is in crisis. My investments aren’t returning what I’m expecting them to. What should I do?”

Now this isn’t a biggie for those of us investing R500 a month, but it’s a different ballgame when your pension’s on the line or you’ve got your life savings on the line.
So one of my clients wasn’t too happy with her recent returns from the Allan Gray Stable fund. She was thinking of stopping her sharemarket investment and putting it all into a fixed deposit investment at her bank.

What am I supposed to tell someone like this?

Well,first things first, I had to re-ask some difficult questions which, quite frankly, she had forgotten about. Here are a few of them:

Did she need a stable income from this?

In her case she wasn’t taking any income from this investment at all. In fact, she wasn’t planning on taking anything for the next two years.

What sort of return was she getting from the Allan Gray Stable fund?

Embarrassingly, and I use that word because I always feel responsible in some way, over the past month she had earned a minus 0.58% return compared to cash where she would have earned a plus 0.54%.

Of course I had to point out to her that over three months she had earned 2.22% in the Stable fund versus 1.63% in their Moneymarket fund. And if we went back to the past three years she would see that she has earned 9.53% versus the Moneymarket at 5.75%.

Click on image below to see what I showed her:

So why had she invested in the Stable fund in the first place?

We met because she wasn’t happy with her returns from fixed deposit. I had explained why she needed to have some sort of sharemarket exposure in her investment, and that cash wasn’t going to beat inflation over the long term.

The question I asked was: “Would you prefer the bank to pay you interest or would you prefer owning the bank?”
“I’d prefer owning the bank obviously,” was her reply.

But at the same time she wasn’t wanting to lose money either. She needed slightly more risk than cash which is why I recommended the Stable fund.

Click on image below to enlarge the fund fact sheet:

You can see from studying the May 2015 fund fact sheet that this was an appropriate choice for someone with her risk appetite.

And where was Allan Gray investing her money in the Stable fund?

Well it turns out that the top five companies in which she owned units were:

British American Tobacco (Can’t see them going bang anytime soon, can you?)
Sasol (Judging from the fuel price I reckon they’re making a killing)
SABMiller (I don’t see any bottle store owners complaining, and you?)
Standard Bank (Heck, these guys manage the money. If they go bang we’re all in deep trouble)
Old Mutual (Well they’re an offshore company nowadays, so if things go south then at least we’ve got some offshore exposure, right?)
Remgro (Would Johan Rupert really let his business go to the dogs?)

Click on image below to confirm what I’ve just shown you:

So we see she’s not invested in Harry’s fish and chips down the drag, but in some serious heavyweight blue chip companies. I don’t know about you, but I don’t see any of these companies going bang anytime soon.

That’s when the lights went on

As we speak, she could be earning 6. 50% per annum in cash. Now that sounds great, but it’s only around 0.50% per month, give or take. Not really that great, after all.

But it’s still better than the minus o.50% she’s earning right now in the Stable fund! I can’t argue that.

You see, the one problem the sharemarket has is investor sentiment. At the slightest whiff of bad news then people sell out left, right, and centre.
But just because the Sasol share price has fallen through the floor (which it hasn’t. I’m just saying); doesn’t mean they’re a useless company. Any investor worth their salt would be buying up shares as fast as they could.

“Now Mrs B. You’ve been in the Stable fund for a couple of years now. You bought those shares a long time back when they were much cheaper. Do you think that if you hang onto your shares, that the share prices will go up in future?”

“Of course they’ll go up!“

“So if you don’t need the money right now, wouldn’t it be best to keep your shares? After all, if you sell them now you’re going to have to buy them back later at a much higher price?”

And with that we parted ways.

Unless you know why you’re invested, you’ll always be at the mercy of either fear of greed.

What do you think?

Would a ‘try and time the markets’ strategy work best? Or what about a ‘reason why you’re doing this” strategy?

Do you need any assistance with your investments? Leave your details below and we will be in touch.