Sir Franklin Templeton, one of the greatest investors of this century, is quoted as saying the four most expensive words when it comes to investing is “this time is different”. The current level of negative sentiment in SA is resulting in a “this time is different” mind-set, which is understandable if you listen to the news. Where to start….
SA economic growth rate expectation for 2016 has now been downgraded to anything between 0.3% – 0.7% depending on who you ask. Keep in mind our unemployment is the highest in the world at over 25%, requiring a growth rate of at least 5% to create a realistic number of jobs. The scariest thing is these unemployed are mostly the young and restless, who are understandably feeling angry.
Our new old finance minister lacks the one skill required to restore confidence in SA Inc. and that is unfortunately not something taught at Finance school; Magic! Mr. Gordhan needs to pull a “rabbit out of his hat” to convince investors and more importantly the rating agencies that he can manage the budget deficit.
This means cutting government expenses or more accurately the bloated government wage bill, while at the same time trying to squeeze a little more from taxpayers who are already on their knees. And it is not just government finances, which look precarious, South Africans are now officially one of the most indebted in the world. Debt to disposable income in the order of 76% and the really bad news is that interest rates are on the way up. The Reserve bank faces the unenviable task of trying to contain inflation by raising interest rates notwithstanding an economy on the brink of a recession and knowing full well the pain it is likely to cause households with excessive personal debt.
It is no wonder many forecasters are predicting doom and gloom, but these are the very same guys who were predicting endless boom times a few years ago during the commodity super-cycle. The purpose of this article is simply to caution investors from taking or making irrational decisions based on the current excessive level of negative “noise” in the market place. Yes, we have very serious issues, but this not unusual or different to the many crisis’s SA Inc. has been through and overcome.
With reference to the recent stock-market volatility, the “this time is different” mind-set is a common behavioural finance error investors make owing to the cause or trigger being different investors think it is really different and thus fail to capitalize on the buying opportunity of falling share prices. When in reality it is just the same sentiment driven cycle, which pushes share prices too low. This may sound a bit simplistic, but it works.
My favourite quote; “Investing is simple, but not easy.” Warren Buffett
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