In this week episodes, Warren Ingram delves into the intricacies of political interplay and its impact on investment strategies in an era marked by national upheavals. The realm of investments, political landscapes often cast long shadows, influencing markets in unpredictable ways. A valuable insight is provided particularly in the context of South Africa amidst the upcoming elections.
Questions/topics to look forward to:
For more valuable insights from the 10x team, click here.
Have a question for Warren? Don't forget to voice note your questions through our WhatsApp chat on (+27)79 807 8162 and you could be featured in one of our episodes. Follow us on Twitter, LinkedIn and subscribe to our YouTube channel for more Financial Freedom content: @HonestMoneyPod
In this week episodes, Warren Ingram delves into the intricacies of political interplay and its impact on investment strategies in an era marked by national upheavals. The realm of investments, political landscapes often cast long shadows, influencing markets in unpredictable ways. A valuable insight is provided particularly in the context of South Africa amidst the upcoming elections.
Questions/topics to look forward to:
For more valuable insights from the 10x team, click here.
Have a question for Warren? Don't forget to voice note your questions through our WhatsApp chat on (+27)79 807 8162 and you could be featured in one of our episodes. Follow us on Twitter, LinkedIn and subscribe to our YouTube channel for more Financial Freedom content: @HonestMoneyPod
Welcome to Honest Money. We're doing another show where I'm trying to batch some of your questions that you've been sending through and just to say thank you so much for the questions that you send. I really appreciate them. It helps a lot to understand what it is that you want to know. And when I'm grappling with good content that I want to give you, especially ideas, then those questions help a lot and I hope that they're helping you. So if we can help each other and you can keep sending them, then we'll keep making a good show for you.
Speaker 1:And today I want to kind of talk about politics and investing. I think political themes tend to influence investors a lot and it doesn't happen all the time but tends to happen in waves. So if we think about the year of 2024, I don't know the exact numbers, but it's about half the world's population will be going to vote for in government elections. So about half the world can change their government this year, and that's a huge proportion. Just say it, somewhere around 4 billion people are able to go and vote on either keeping the existing government or changing the government that runs their country, and there are some big elections there. If we look at just South Africa, the US, I mean, I think, just for South Africans. Obviously, choosing a new government is important and potentially in 24, it could be the first time that in the democratic era that you see the anti below 50%. It's not a prediction, but it's a possibility. And in the US, there is a chance that Biden loses to Trump Now again, not a prediction, but it's a chance. And equally, there is the prospect of Trump's legal troubles causing him to be barred from the elections and that will have consequences. So add to that what's going on in the Middle East, add to that what's going on in the Ukraine.
Speaker 1:There is a lot happening around the world and it's about politicians. And whatever we say about politicians, my own jaundiced view is that they're not really operating in our best interests. Your local councillor might be amazing and wanting to make life better for you and themselves, but the moment you go to a national level, politicians are living a life of compromise, and I think those compromises come at the cost of the voters. South Africa is a great example of politicians looking after themselves for the last decade or two and not really concentrating on voters, and I think the same in the US. It's all about Trump's ego and about the Republicans fighting the Democrats, and they're kind of losing sight of the fact that there are voters who just need life to get kind of a little bit better for them every single year. And so all of that's worrying and I think the world is in a huge state of change. We're kind of in a new system again, and I'm saying new godedly because the history rhymes.
Speaker 1:Whatever's happening now has sort of happened in the past, and the world is moving away from globalization and it's going a little bit more to isolationism Again, nationalism, where people focus on themselves and they don't really care too much about their neighbors and about countries across the world. And that has real consequences. It causes the cost of trade to go up, it causes a lot of friction, the potential for global conflicts is increasing, and so it's right that we worry about these things. But all of those political issues, it's difficult to translate them into sensible, rational, long-term investment decisions, and so what I notice with politics is we tend to be either exuberant which is rare but usually very fearful when we talk about politics, and that fear tends to have a big impact on the way we make investment decisions. So you know, if you just think about America.
Speaker 1:You know people were really worried about Trump the first time he became a president and and you know he caused a lot of nonsense. You know he kind of really did shake the world up, but but but G for stock markets. You know the fear caused the markets to go down before he came in, but some of his actions caused once he was president caused the markets to go up and and so just understanding that, you know, even a really fearful kind of incident might, might not be a bad stock market incident, and that's a. That's a brutal reality. You know, when you get a really lousy human which is my interpretation of Trump he might not be a bad thing for stock markets. You know when, when Jacob Zuma was made president of the ANC for the first time while Tobin Beke was still president of the country, that ran strengthened the next day Just think about what happened in the years after that and the ran strengthened.
Speaker 1:So so markets move for lots of different reasons and not always just about things that are happening in your own country. You know, when they're global events, that kind of overwhelm, whatever's happening locally that can cause things to move in the exact opposite direction to what you would believe in, what you would predict, and I think that that's particularly true for a small country with a small economy like South Africa. You know we have an incredibly liquid stock market, a very liquid bond market and a very strong currency market. So so when I talk about liquid, I mean what I mean. There is it's easy to buy and sell our investments and it's easy for locals and foreigners to do that.
Speaker 1:And so you know, if we get a really bad political outcome in the national elections in 2024 in South Africa and I'm not sure what bad means at the moment I don't know how to forecast this election, but let's just say we get a bad outcome and it happens at the same time as something really positive globally. You know, let's just say we get a resolution of the conflict in the Middle East and in the Ukraine. You know that might cause investment markets to go up all around the world, it might cause the RAN to go up very nicely and it might cause the JSE to strengthen, even though we've got a bad political outcome. And so, just understanding that you know if you're investing or maybe not investing because of fear, because of political outcomes, you know what you believe in investment outcomes will be based on political events. You're playing a really dangerous game, and just to explain that, so let's just use the South African election. Let's just say you're an investor and you say I think it's going to be really bad for South Africa if the ANC gets above 50%, and so I think that they might, and therefore I'm going to sell my shares and I'm going to store my money in cash.
Speaker 1:Now a couple of things have to happen for you to make have made a good call. One is that you need to be right in your prediction. You need to be right that the ANC is going to get over 50%. Two, you need to be right that other investors will react badly to that news and drive share prices down. So you need to make two calls in a row that are correct about something that's hugely variable. Firstly, the political outcome of an election in South Africa in 2024 is completely uncertain. I haven't seen anyone make a very strong forecast with great confidence. And secondly, if there is so much uncertainty, how do you know how other people are going to feel about it and how do you know how that feeling is going to cause them to make investment decisions? The answer is. You have no idea, and that's not a reflection on you. That's a reflection on the fact that humans are entirely unpredictable around short-term events, and so I think when you're investing or not investing out of fear, you open yourself up to missing great investment opportunities on the one side or potentially making really bad decisions that cost you money on the other side.
Speaker 1:One of the antidotes to fear is that you and I'm talking about investment decision is that you buy gold. When you think the world's going to fall apart. Then some people will buy gold and they'll say well, at least gold's got. It's a physical thing, it's got intrinsic value, I can hold it. And if the world falls apart, it's going to be a real mess. And I've got a physical asset. And I understand some of the logic of owning a physical asset. But just to understand that the only reason the gold price goes up from the time you've bought it is because other people are even more fearful about the state of the world than you are, and so they're willing to pay you more than what you've paid for your gold.
Speaker 1:Now what happens if your predictions are wrong? What happens if the outcome of the election goes 42% and suddenly investors think that that's really good because there's going to be a fantastic coalition that will be market friendly, et cetera, et cetera. And then everything goes up. So gold price might go down, or Trump goes to jail, biden gets in again, but he gets a fantastic support and there's a whole lot of reform and sorts out the Middle East, sorts out Ukraine. Suddenly, the world's in a great place. If you were convinced that Trump was going to go into power and you were sitting in gold or in cash, that could be really bad for you. Just to understand that your predictions based on political outcomes and allowing that to drive investment decisions, I think is a high risk strategy.
Speaker 1:However, I'm not saying to you that if you're an investor in South Africa, you should have all your money in one place. I'm not saying that at all. I think having global diversification to mitigate against political risk is really important. I would be saying to someone don't put all your money in America, because there is so much that can go wrong in the US at the moment. Don't put all your money in Europe for the same reason, and don't put all your money in South Africa. Rather, spread your money globally. Buy a global index or buy a global equity fund or a global balanced fund and get good spread of investment markets and then ride out the volatility, because elections are going to be volatile. They'll be volatile before the vote and there might be a bit volatile after the vote.
Speaker 1:The reason they're volatile before the vote is politicians are going to say dumb things to get voters to vote for them In South Africa. They're going to talk big talk. The socialist side of things will come out again and they'll talk about nationalizing something or land reform or whatever it is. Then, once they're in power, logic and rationality will prevail somewhat. I'm not saying that all politicians are logical and rational, but some of those big promises they made, they just forget about them. If you remember, we were promised in 2017 that load shedding would end in two or three years. It's seven years later and we're no closer to load shedding being gone, but those same politicians are still in power and not even trying to explain their broken promises. They just carry on and make new ones. So don't trust the politicians with the promises and don't get freaked out by what they say. Understand they're just saying anything to keep their jobs and it's what they do afterwards that counts.
Speaker 1:So do a proper diversification strategy with your investments and proper diversification is a great antidote to political uncertainty. But I think if you're going to sell everything, sell all your shares because you think the world's going to go into a deep state of decline based on political outcomes. People have been saying that for the last 100, probably 200, probably 1000 years in fact, and it hasn't proven to be the case. The world comes out of world wars and eventually things recover and eventually businesses do well and generate money, and so remaining invested where you can makes an enormous amount of sense. Chopping and changing your investments based on predictions about politicians.
Speaker 1:Politicians can die in the job. You've got a world of lots of old politicians out there that are in their late 70s or early 80s, mortalities kind of creeping up on them, and if you've got a bad politician who's a president, that president may not be around to fulfill their term and who knows who replaces them. So much can change, so many variables at play, that you just can't predict them. No one can. So, rather, stick to diversification and benefit from a long-term strategy and forget about the short term and close your eyes sometimes to the politicians and stop listening to what they say and get off social media when you're tracking these guys and they're mostly men they're not there for your good and they're not saying things to make your life better. They're saying things to make their lives better, so why pay them attention? And whatever you do, if you're worried about politics, the only thing you can do is go and vote, get your vote done, make it count and then see what happens.