The second quarter of the year has been notable for a number of reasons, not least of which, the start of the World Cup Soccer tournament. Sport often offers us useful metaphors for different aspects of life in the real world. The World Cup has some interesting insights for investing and I thought it would be useful to reflect briefly on five of them.
First, the most common disclaimer in investments, “past performance is no guarantee of future performance” has proven itself to be true. Previous winners and the “team of the decade”, Spain, made an ignominiously early departure from the tournament.
Second, it does not pay to trade on “inside information”. Seven Cameroon footballers are being investigated for match-fixing after their 4-0 defeat to Croatia and the sending-off of a player was predicted by a well-known gambler.
The third insight, is that a solid team process inevitably trumps talent. Not even superstar Christiano Ronaldo could save Portugal from an early exit.
Fourth is one we need to remind ourselves of consistently in investments, we can’t predict the future. Who would’ve predicted that minnow nation, Costa Rica, would’ve have topped the so-called “group of death”, which included former World Cup winners Italy and England?
Finally, the fifth insight, despite all the fuss that is made about soccer it is still only a game. As a game, there are very clear rules to follow, and the referee has the unenviable task of telling you when you aren’t quite sticking to those rules. This particular insight doesn’t readily apply to investing, but is still one from which we can learn.
In contrast, the reality of advising on and managing money, is that things are not that simple. There is constant change, whether it be in the rules, with much awaited regulatory change about to hit us; how investors behave as they respond emotionally to the rise and fall of markets; as well as the performance of companies and economies, which ultimately drive the returns of our investments. As Warren Buffett says, in the short-term the market is a “voting machine”, and people often vote very unintelligently, but in the long-term it is the weight of companies and economies that ultimately drive returns.
Whilst we’ve had the constant excitement of the World Cup to enjoy in this quarter, the real world in which we operate has seen much change. On the downside, we’ve had the longest strike in South African history, which, according to most analysts, will change the face of mining in South Africa forever. On the upside, the South African equity market has continued to reach new highs. Internationally, equity markets have also continued to rise on the back of the liquidity that is being maintained by the Central Bankers. In the US, properties are now things that people actually want to buy rather than just try to sell.
Coming back to the rules of the game, in South Africa, the Regulator has given us some indication of how the rules are changing and what to expect from the much-awaited Retail Distribution Review (“RDR”). In fact there is nothing new here, as the regulator continues to emphasize the need to put the client first, give good advice and charge reasonable and transparent fees. But when the rules of a game change, there is always the fear of those changes. Coming back to our soccer theme, FIFA long resisted the introduction of technology to help with referee decisions at the World Cup. This has now changed, for the good of all parties.
So, as we move into the third quarter, we can be sure of more changes, some predictable – some not. We know for sure we’ll have to look away from Brazil for our escapist fun, but we really don’t know if the NUMSA strike in South Africa will rival AMCU’s strike for its longevity or whether equity markets will remain on the up. What we do know is that if we continue to advise clients and invest their money with a disciplined and rigorous process, we may not be able to predict what the outcome of the short-term “voting machine” will be, but we are very confident that we will be able to take advantage of the weight of economies and companies, over the long-term, and deliver long-term sustainable returns to our clients.
Finally, there is something that we can predict for sure will happen in quarter three. The MitonOptimal Group Head Office in Cape Town will be moving. Not very far in fact, just across the road, to the Great Westerford building. Our current office space has become too small for our growing business, so we will be re-locating on September 1, 2014. It will be a sad farewell to our current offices, which have been home for over ten years, but we recognize that in our real world, change is the constant that we need to manage continually.
I trust you enjoy this second quarter review, and wish you well in the changes you may face in quarter three of 2014.