Hi 
I got in an email and thought it was good enough to share to you all. Maybe you can use some of this. I know its from last year, but the content is useful.
By keeping calm and following some good, solid principles you can get through this time unscathed.
Cape Town, October 2008: Bad news from the financial world is the order of the day right now, so no one can really blame the ordinary South African investor for wanting to sell their stocks and pop their capital under the mattress until the turmoil ends. But, as an investment professional, I would seriously caution investors against this dramatic approach. By keeping calm and following some good, solid principles you can get through this time unscathed – and possibly even turn it to your advantage. Here are my top five investments tips.
Investment tip #1 Think long-term
Possibly the best piece of investment advice ever given by the financial services industry is to look at investing as a long-term activity. This is pretty much the ONLY way to make it truly work for you. It is difficult for investors not to panic when in the short term they don’t see significant returns, but those individuals that have truly built wealth on the markets are patient and future facing. People who made fortunes overnight on the stock market are few and far between, best not to try to be that one in a million. Long-term, in case you are wondering, is three years and longer.
Investment tip #2 Diversify across many investment classes
Diversification means that, rather than investing all your money in property or putting it all in unit trusts or cash, you spread it across a range of asset classes. This will ensure that you are able to benefit from the ‘good times’ in any asset class and that you are guarded against risk if a particular investment area is not performing well. During the current downturn, proper diversification is as important as ever. Finding the right mix of asset classes is the job of your investment manager. During tough times on the stock market it may make sense to change the weighting of your portfolio so that you have more money invested in commodities like gold. Then when the situation improves, you should change the weighting to be heavier in equities.
Investment tip #3 Stay in the stock market
Often when economies are in a slump and stock markets are turbulent, investors act on their emotions and sell shares for fear they will lose their capital. However, while it is true that stock markets are naturally volatile, it is also a fact that over the past century, shares have consistently produced the highest returns of all asset classes, including property, cash and government bonds. This is an extremely compelling reason to stay in the stock market, even if your ‘fight or flight’ instinct is telling you not to. Just be sure that your portfolio is carefully customised to your risk appetite and life stage needs.
Investment tip #4 Choose your investment manager and strategy extremely carefully
When deciding on a manager or an investment strategy there is no right or wrong choice. The decision should be based solely on what makes the best sense for you. Each investor should evaluate his or her own personal goals and appetite for risk, and use this as the basis for these decisions. But once you’ve chosen, what is most important is to stick to your decision because chopping and changing either your manager or strategy is likely to cost you dearly in terms of returns. Never is this advice more true than in an economic downturn when panic and nerves often cause investors to want to make changes. You are likely to pay more for changing than staying where you are.
Investment tip #5 Do some stock-picking now
Simply put, when times are tough shares are often at their cheapest but people take their money out of the market. When times are good, shares are their priciest but people buy shares. This just doesn’t make good investment sense. Lately, equity markets have been volatile and many shares have not been performing well. Clever investors know that this creates a wonderful opportunity to buy shares which are currently priced cheaply and which are likely to achieve good returns over the long term. It’s Business Economic 101, “Buy cheap and sell expensive.” This approach takes some hard work and research because it is necessary to find the stocks which offer true future growth prospects rather than those that are cheap because they offer limited value as an investment. Finding the investment managers that do exhibit a successful adoption of this approach is required, and should be favoured in these environments.
Andrew Rumbelow, Chief Investment Officer of Sanlam Multi Manager International (SMMI)
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