Navigating the storm

Florbela Yates, head of Equilibrium

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Head of Equilibrium
Florbela Yates, Head of Equilibrium

Navigating storms is never easy. It requires planning, a fair bit of faith, reliance on various tools and often consultation with experts. The early explorers relied on an understanding of sea tides, their ability to navigate with the stars, read the weather and use basic navigational devices to keep them on course. Captains would tell stories of how off-course they had been blown and how much longer it took to get them back on course, often with a seasick crew who were unable to work and the risk of scurvy if the additional travel time meant running out of fresh supplies.

Nowadays, travelling is far simpler with navigation relying heavily on technology, a better understanding of weather patterns, early detection systems and vessels built to make the journey more comfortable regardless of whether it takes place by road, sea or air. Navigating investment markets also has its challenges and your investment manager needs to be equipped with all the right skillsets and tools to stay the course.

When starting out on an investment journey, investors should follow the same steps as any other navigator or explorer:

  • Planning:

    In this early stage investors should ideally identify their investment goals, time horizon and consider their appetite for risk. The answers to these questions ultimately dictate the type of investment that will be most suitable to each investor. Those with a higher risk appetite, longer time horizons and higher required returns would ideally need to invest in more aggressive options than investors with a shorter time horizon, lower risk appetite or a capital preservation mindset.

  • The Journey:

    Just as a road trip requires decisions around which route to take, the answers above would lead to a decision around the most suitable investment journey. Those wishing to avoid volatility would be best suited to an investment with a focus on capital protection and less exposure to growth and offshore asset classes, similar to travellers wishing to avoid potholes, would opt to travel on the national toll-road or if you did not like turbulence you would only travel by sea or road.  Here a partnership between the client, financial adviser and investment manager can be useful in helping plot the appropriate journey. Behavioural tools can also help analyse a client’s personality and the impact that it may have on the investment decisions that you make.

  • Reliance on tools:

    Navigational tools are built by experts who have analysed weather patterns, the effects of tides and pressure and then adapted and perfected their tools over time as their understanding has grown and patterns become more evident. In the same way investment tools are built by experts who understand the impact of various economic factors on asset classes, the typical patterns experienced in each asset class and ways to manage both risk and outcomes. An investment manager might not only be looking at the underlying assets in his portfolio but could extend to a multi-manager or discretionary fund manager, who not only does asset class analysis but also looks at investment styles, portfolio construction and helps to identify the appropriate asset managers for your portfolios. With a deep understanding of asset classes and correlation or diversification amongst various underlying asset managers of funds, they are best placed to build truly diversified portfolios that aim to meet investor needs whilst often ‘smoothing’ the journey. Once again, behavioural tools can then overlay other insights that protect us against ourselves and help clients to stay invested for the duration of their investment journey. The importance of this is often overlooked – but imagine the implications of jumping ship or free-falling out of an airplane halfway through the journey. The consequences would be disastrous. Your client’s investment journey is no different, there are consequences if they do not stick to their original plan for achieving their investment outcomes. Investors should ensure that they pick a financial adviser and investment manager that they trust, and then rely on them to get them to their investment outcomes. No different to choosing the airline or cruise liner to get you to your ultimate travel destination.

  • A good measure of faith:

    Without a crystal ball that can determine the future, we all need to have some faith. Unfortunately, this offers little comfort to investors who constantly look at their statements and see the value of their portfolios going down during times of market corrections or who question their investment manager’s skill during times of extreme market volatility. But what’s the alternative? To go against your well-thought-out plan and disinvest when your statement says you have less money? The answer is no. This behaviour ensures that your client lock in the negative returns and will get lower returns. Whereas if your client did nothing and waited they will see their investment recover and grow. Jumping ship during a violent storm is never a good idea and exiting the market when it’s going down or reached the bottom could result in not having sufficient money to meet investment goals. 

2022 was a year dominated by constant storms. It started with the Russian invasion of the Ukraine and was exacerbated by the rising inflation and potential recessionary headwinds globally, coupled with an increasing Eskom crisis locally. The rand remains one of the most volatile currencies and with low economic growth in South Africa, lack of sustainable infrastructure spend, and lack of direct offshore investment into our economy, markets have faced various challenges. Investors may feel that there was little place to hide – but those who stuck to their investment plan were able to weather the storm. Fixed income assets in the form of government bonds, selective high-yielding credit and inflation-linked bonds provided some protection whilst delivering real yields and those in diversified equity portfolios and hedge funds probably ended the year with a real return that not only kept pace with inflation but actually outperformed it. I’ve learnt that navigating the storm is never easy, but jumping ship seldom yields a better outcome. 

For more information go to eqinvest.co.za.


Equilibrium Investment Management (Pty) Ltd (Equilibrium) is an authorised financial services provider (FSP32726) and part of Momentum Metropolitan Holdings Limited and rated B-BBEE level 1