In week's episode Warren Ingram, guides you with a comprehensive discussion on investment myths and the impact of FOMO in the South African market. Through research and observations, he provides guidance for investors, cautioning against chasing short-term highs and reacting impulsively to trends.
Questions/Topics:
By maintaining discipline and focusing on long-term goals, investors can navigate market fluctuations with confidence.
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 week's episode Warren Ingram, guides you with a comprehensive discussion on investment myths and the impact of FOMO in the South African market. Through research and observations, he provides guidance for investors, cautioning against chasing short-term highs and reacting impulsively to trends.
Questions/Topics:
By maintaining discipline and focusing on long-term goals, investors can navigate market fluctuations with confidence.
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 a talk about investments today and and this is going to be a little bit of about psychology and and your money and how you think about investing and and so, you know, get comfortable on the couch, sit back and and and listen to, listen to the conversation and and let's see if we can help you make some smart decisions around your investments and maybe avoid some some not so smart decisions. And if you hear a little bit of frustration, my voice today, it's there. One of the things that bothers me about, about investing and especially talking to investors, is we kind of stuck in this pattern as investors and this is a global phenomenon. This is, you know, whether you're 22 year and starting out, or you know 62 or 82 and and you know deep experience in the investment markets, this applies. So what happens is we'll watch our investments as, as investors, and, and especially what's happening in the last year or two, we start to form kind of a pattern in our brains to say that whatever happened last year is probably going to happen next year. Whatever's happened over the last three years, that's probably what's going to happen into the, into the next three years. So we kind of, you know, form these patterns and and then, especially when things have gone very well for a year, we think, okay, well, that's going to happen again. You know the last year was pumping. Stock markets were up 20%. You know, I'm expecting they'll go up 20% again this year. So I'm going to change my whole strategy to follow what happened last year and and you know, especially with stock markets, it actually applies even more when we talk about specific sectors.
Speaker 1:So, if we just talk about 2023 as an example, there were basically seven shares that drove the world's stock markets that they actually have a name that called the magnificent seven and and those are primarily enormous tech companies, mostly based in the US, and they had a phenomenal year from a stock market performance point of view. Exactly why it doesn't really matter that. I think the point is that that investors started to watch their share prices go up. Those seven companies, and, and so investors bought more and more and more of those shares, and and these are enormous companies that just shut up in in value, and and so you know they did incredibly well and and if you look at the index in America, you know the top 500 shares in America is called the S&P 500. And you looked at the performance in 2023. You would say what you? That was a phenomenal year. You know the markets did incredibly well. You know kind of 18 to 25%, depending on which markets you looked at around the world.
Speaker 1:But when investors go and look at their, their statements, you know if, let's say, you own a global balanced unit trust or a global balanced ETF, your investment might not have done nearly as well. And then you're saying to yourself well, hang on, you know why do I own this global balanced fund when actually you know the S&P did so well and actually the NASDAQ did even better? Why don't I just sell everything I own and just buy the NASDAQ index to get more exposure to those magnificent seven? Because they did so well last year, I'm sure they're going to do incredibly well in 24 and 25. And and so that's what investors do, and they do it repeatedly. They do it with tech, they do it with mining if mining is going well, they do it in so many different sectors and it's usually around shares more than anything else. And then the same applies when markets fall apart.
Speaker 1:So when things go really badly and stock markets go down for three or four years, investors start to say you know what stock markets are a lousy place to make money. Whenever I buy shares that go down, you know I don't know if you've heard yourself say that or all of that and then what investors do is they sell those shares and they sell their stock markets, and, whether it's individual shares or the index, they kind of do it as a pattern, they do it as a collective, and so they sell in bulk and then the stock market goes down a bit more and then all of a sudden, things start to turn, you know, because the professional investors and the kind of more experienced savvy investors look around and they say you know what the stock market's offering? Incredible value, it's really cheap. And so the early investors start to buy and and, and they might be buying when the markets are still going down a bit and, and you know it's a bit tough to be buying things when, when you're losing value, and even more tough when everyone else around you and the media is saying gee, you know it's blood in the street, sell shares. You know the stock market's a terrible place, but the savvy investors just keep buying Twitter, liar, or and so eventually they start to get rewarded because those cheap companies that they own are paying dividends, generating growing profits every single year, and so those investors start to make more and more money and then share prices start to recover and they start to grow and they grow, and they grow and at some point the stock market starts to perform really well and after about three or four years of great performance, everyone else wakes up to it and goes gee stock market's, hoping maybe I should sell my cash, which has done nothing for me in the last four or five years, and put that into the stock market. And they usually do it when the stock market's really expensive.
Speaker 1:And then all of a sudden the stock market goes south because the savvy investors start to say there's no more value in the market. I think the market's really expensive, I'm going to cash out and put my money elsewhere, and then the market goes down, and so that pattern repeats itself over and over and over again. It's just really a destructive pattern of investor behavior. I feel frustrated because I can see it happen over and over again and I can't get away or find a way to convince people who are in high quality businesses that are just cheap to stay invested. And equally, I can't seem to convince everybody that's chasing now, for example, the Magnificent Seven chasing those returns to tell them to watch out.
Speaker 1:And I think that's why we, kind of on the honest money, we preach diversification a lot, because I'm not saying you shouldn't own big tech companies. There's some fantastic businesses, I think. If you just look at what Microsoft's done in the last two decades a phenomenal company. Apple's a phenomenal company and I just think that there are really high quality businesses. But I'm not going to go and take all of my money and put it in there. Why? Because those companies can have in value. Their share prices might drop by 50%, so you could have $100,000 in there and in a year it's worth $50,000. It hasn't changed the quality of the company Still fantastic companies but people have worked it up to the fact that the share prices are just phenomenally expensive.
Speaker 1:So to me, diversification makes a huge amount of sense when you're not a crystal ball investor and the truth is no one's got a crystal ball that works all the time. In fact, no one's got a crystal ball that works any point in time. What might happen is you might be really lucky, you might flip your coin and you choose heads and the market goes up and you go great, I'm a genius, I'm going to keep this coin. Then you flip the coin again next year and the market goes up again and you say you see my lucky coin, me and this coin we're market geniuses. But there'll be a year when you flip the coin and the coin will say the market's going to go up, and that's the year it goes down. And suddenly you don't feel so clever and so you throw your coin away and you try again, and my view is that's just not sensible.
Speaker 1:The sensible thing to do is have a broad exposure to a lot of different investment assets across a lot of different markets. In other words, don't put all your money in America, but equally don't put all your money in South Africa or in Taiwan or in China. Have a big global exposure. The simplest way to do that is a world index. It literally owns the world, and if America's pumping and the tech shares are pumping, you'll get some of the benefit from that. But equally you'll have exposure to Europe, where maybe Europe is really cheap and not pumping, but it might be the market that pumps next year and then you'll be in there. But if you've got all your money in tech shares right now, you're going to miss out on maybe the potential recovery in Europe or the phenomenal recovery in India or something like that. I'm not sure. That's not a prediction and then you, equally, will have the catastrophe when tech shares fall over in America I'm not saying that's going to happen now, but just valuations count.
Speaker 1:When sectors and companies are phenomenally expensive, they can get more expensive, they can keep going up for a while, but always they're correct. Always valuations start to weigh in on a company and share prices turn to make those companies more valuable again, and the problem is we just don't know when. So if you own a global balanced portfolio now and it hasn't done as well as the tech shares and your friends on the whether you're mountain biking or golfing or brying, and someone's telling you about our amazing their investments were last year and they're up 25% and you're only up five, perhaps just wonder whether that 25% is going to fall over, you know whether those people are going to see their big losses in their portfolios In the in the months or years ahead and your, your portfolio keeps growing at 10 or 12%. You know who's the genius then? And I think you know, understand that the people are really vocal about how wonderfully they're doing with their investments. Those are exactly the same people that say absolutely nothing when they have a lousy, so worrying about what everyone else is getting around you. That's called FOMO. It's a fantastic way to lose money. Just understand that. I'm gonna repeat that it's a fantastic way to lose money.
Speaker 1:What you need to do is build a strategy that suits you, have proper diversification and then keep growing your money consistently over time and don't worry about what everyone else is doing. The truth is that the loudest people probably have the least amount of money and the biggest amount of debt and they want to feel good about themselves, so they brag about something. The wealthiest people out there often they call them the quiet millionaires. You know that they've got Very good investment portfolios, they're doing very well and they feel no need to brag about it, and so you're not going to see those people on social media With their bling. You know art, fits and cars and stuff. They're just. They're living their best lives and actually doing what everyone else wants to do, and so forget about what everyone else is doing and just stick to a strategy that works for you and, most importantly, don't get over excited when one part of the market is absolutely booming and you don't have all your money in there, and don't get too depressed when a portion of your portfolio is going down.
Speaker 1:Diversification is good, and diversification means that some of your money will always be performing not as well as other parts of your money. That's, that's okay. That's that's the whole point about investing is it's slow and consistent growth over long periods of time. It's it's compounding little bits of gains year after year after year, and when you look back over five and ten years, you will have a lot more money than those that have made 30% in one year and then lost 30% the next year.
Speaker 1:It takes it takes phenomenal luck to be a wealthy investor when your portfolio is doing plus 30 minus 20, plus 20 minus 50. You know, and you do that all the time, you know. So chasing returns is just a great way to lose money and a horrible way to live. So I hope that helps. You can get off the couch now, and, and, and. If you want to know more about this, there's a fantastic book called same as ever. I'll repeat that the books called same as ever by Morgan Hassell, and he talks a lot about what doesn't change, how humans don't change and how we can take advantage of human behavior as an investor to make money for ourselves. And I encourage you to read that book if you're getting tempted by by chasing the former investments of the moment. Thanks for listening.