I recently watched someone using a leaf blower to clear their pavement. As I watched, it struck me what a pointless exercise it was and it crossed my mind that the leaf blower must be one of the most senseless machines yet invented. You never actually deal with the problem, you just move it somewhere else for it to come back the next time the wind blows.
This got me thinking about how many things in the financial services industry make little or no sense.
Take for instance the legislative requirement for investment companies to report (too frequently in my opinion) to their investors. I understand the issues of transparency and accountability but the frequent reporting leads to investors focusing on the short-term returns. This is less of a problem when the markets are positive but is far more problematic following periods of poor/negative returns as is currently the case.
For the first quarter of 2018, the ALSI has shown a negative return of ±4%. When you factor in the strength of the rand on top of this, it has been ugly and most portfolios are down over the quarter. But that’s just it: they are down over the quarter.
Truth is that markets have moved sideways for almost 4 years now but this has been “hidden” by the fact that the rand was substantially weaker over the same period. Until mid-December 2017, that is, when it became clear that Cyril Ramaphosa was going to be our new President. Since then, the ZAR has strengthened by more than 10% against the US$ and we are back at levels last seen just over 3 years ago.
Fact is, there is nothing that can be done about past performance; it has passed! Investors need to look forward and as long as their goals and circumstances have not changed, then the best thing they could do with the quarterly investment reports would be to line the proverbial budgie cage with them. They are just short term noise which could distract you from sticking to the plan.
Something I wrote 8 years ago still applies! “Unfortunately, legislation requires that companies report frequently (how that happened is the subject of another post) and as a result, clients are getting statements too often (in my opinion). Combine this with the ability to access the values online and the absolute glut of information by so-called experts it becomes too easy for investors to be distracted from their plans and to make decisions based on the short-term “noise”.
I am not advocating a reckless negligence of your finances but I recommending that if you are an investor (that implies that you are in it for the long haul) and you have an investment plan/strategy in place, then you need to learn to do the “Micky Blue Eyes”* with your investments and “fur ged abowd did”. Give them time and they will come right!”
You can read the reference to this comment here: https://www.thefinancialcoach.co.za/2010/07/13/do-the-mickey-blue-eyes/