BY FRANCOIS VAN DYK
Why you should not go to stock market for quick cash
I have long found the stock market very interesting though I am certainly no expert. The London Stock Exchange crash, followed by the Wall Street Crash in 1929, caused an instantaneous calamity globally as huge monies disappeared immediately. It ushered in the Great Depression of the 1930’s which saw massive unemployment and poverty.
Early forms of brokers and exchanges first appeared in Europe around 800 years ago and this system of buyers and sellers of stock or “shares” in companies now form a massive part of the global financial system. It basically entails buying a share of a company, hoping that the company would grow and create profits, payable via dividends, and that you can eventually sell the share at a profit.
Influencers
In April 2013, a tweet was sent from the Associated Press’s Twitter account: “Breaking: Two Explosions in the White House and Barack Obama is injured.” Being a highly respected news agency the tweet was immediately shared thousands of times. Algorithms, designed to identify online content which could affect the stock markets, immediately highlighted the issue and panicked trade ensued – the Dow Jones Industrial Average dropped 143.5 points and The Standard & Poor 500 index lost more than USD136 billion.
Luckily the markets recovered very quickly when it was realised that Syrian hackers took over the Associated Press Twitter account and sent the false tweet. But this certainly demonstrates the volatility of markets!
I use the Associated Press example in many of my workshops on best communication measurement and evaluation practices. With the advent of social media, and the massive importance this plays in the communication space, I regularly get asked by public relations practitioners what the value of a social media post is. Is it a hundred shillings? A thousand? Do you multiply a specific value by the number of followers the person has that tweeted? It is obvious that it could be worth millions, have no value or could cost the organisation billions (as in this example!).
Another fascinating theory is the impact of weather on the stock markets and conflicting research has been done on this claiming that weather affects the traders’ moods and hence their trades. In months with colder weather traders are more negative and depressed and hence markets drop where the reverse is true in summer when their moods are better. However I would suspect that only really affects European and US stock markets as our winters here in Africa are a bit less gloomy!
Timing is key
I have many friends and family with the view that trading in stocks makes quick money but their experiences have proven them wrong. I have also made investments with two highly respected funds which track the top shares on the Johannesburg Stock Exchange and I am highly disappointed that both these funds basically showed a zero percent growth over the last five years.
Overberg Asset Management reported in December 2018 that the last five years has been the worst performing period for the JSE in more than 50 years. So it appears my timing has been terrible. They also noted that blue-chip stocks that were usually very good investment vehicles suffered major losses in 2018. All of this is symptomatic of the economic turmoil due to poor economic policy and political populism South Africa has experienced in the last few years. The economy is stagnant and policy uncertainty has taken a massive toll on business.
However, this also highlights a major mistake many investors make. Many people buy shares that they see growing massively, and once the cycle turns they start panicking and end up selling them at a lesser value. Instead of buying them when they are undervalued – at lower costs.
Advice from a titan
The reality is that investing in shares is a very long-term investment. Billionaire investor Warren Buffett is well known for his long-term views on his investments. He believes it is no use to invest in a company on how well it is performing at the moment but rather looks at the sustainability and opportunities for future growth. He told CNBC earlier this year that “nobody buys a farm because it will rain next year but rather that it will perform over the next ten to twenty years.”
It is worth noting that he was 30 when his fortune reached USD1 million and reached a USD1 billion when he was already 56. The increase in his net worth since then has been phenomenal and shows the power of compound growth. The next few decades saw his wealth increasing exponentially – almost doubling every ten years – to the estimated current USD73 billion.
I would always suggest a diversification of investments – property, savings and shares. As the old saying goes do not keep all your eggs in one basket. And though I am disappointed in my own dabbling in shares I will take a leaf out of Mr Buffett’s book. Once my investment vehicle matures in 2019 I will be putting those funds right back where they were. It doesn’t bother me at the moment – out of sight, out of mind. The market will turn again, business will go on. We just need to learn a little bit of patience.
Francois van Dyk, @sbalie, is the head of operations at Ornico, a brand intelligence research company. He worked in public relations before joining the world of media research.Email: francoisv@ornicogroup.co.za
