FNB Wealth and Investments’ Wayne McCurrie recently posted a list of what he has learned after 30 years of investing and being active in the markets.
McCurrie is a household name in South African investment circles and is a regular market commentator on Business Day TV, 702, CNBC Africa, ENCA, and Newzroom Africa.
He started his career in the financial industry in 1988 when he joined Lifegro Limited as a management accountant.
After a stint at Sage between 2002 and 2004, he re-joined the FirstRand Group as managing director of Momentum International Multi-Managers.
He was also a senior portfolio manager at Momentum Asset Management, responsible for managing the Momentum funds and retirement fund portfolios.
Before moving to FNB Wealth and Investments, McCurrie was a fund manager at Ashburton Investments.
He served as a non-executive director of Strategic Real Estate Managers – the manager of the Emira Property Fund – since 10 December 2008.
He holds a BCompt Honours degree and is a chartered accountant (CA), giving him a good foundation in the investment industry.
McCurrie recently shared what he learned after 30 years in investments in a series of Twitter comments.
His biggest lessons are that you never stop learning and that 95% of your market experience is cyclical.
He said structural changes do happen. They are unstoppable but are usually evolution rather than revolution.
Here is a summary of what Wayne McCurrie had learned after 30 years in the market and managing investments.
Navigating the Complexities of Asset Management
Managing your assets doesn’t require a degree in rocket science. Don’t be intimidated. Instead, equip yourself with knowledge, be attentive, observe market trends, conduct thorough research, employ critical thinking, and use common sense. Stay curious, evaluate options carefully, and stick to the basics. Remember, greed and panic have no place in successful investing.
Diversification: Avoiding the All-Eggs-in-One-Basket Fallacy
While some may believe that concentrating investments in a single opportunity is a wise strategy, it’s crucial to recognise the survivorship bias at play. We often hear success stories of a few lucky individuals who struck gold, but the many who suffered significant losses tend to remain silent. Diversification, spreading investments across multiple assets, is the key to mitigating risk and ensuring long-term stability.
The Past as a Guide to the Future
When it comes to predicting future market behaviour, the past plays a vital role, particularly in identifying cyclical patterns. Factors such as commodities, inflation, interest rates, and currency tend to exhibit recurring trends. While the past doesn’t repeat itself verbatim, it does provide valuable insights into future market movements. Embrace change as an evolutionary process.
Overcoming Our Biases
As investors, our own human nature poses a significant threat to our financial endeavours. We may be tempted to abandon ship during challenging times or impulsively invest when everything appears favourable, driven by the fear of missing out (FOMO). It’s crucial to exercise caution during extreme market conditions and avoid making investment decisions based solely on advice, news, or opinions. Remember, searching for the “next winner” can often lead to suboptimal outcomes.
The Myth of Investment Experts
Contrary to popular belief, there is no such thing as an investment expert who can predict the future accurately. Investing is inherently speculative, and no one possesses a crystal ball. While some individuals may have a reasonable track record over time due to skill, experience, or sheer luck, investment decisions are never foolproof. Investing is an art rather than a precise science, and expecting a consistent and high success rate is unrealistic.
The Role of Analysis and Fundamental Principles
While statistics, quantitative models, theories, artificial intelligence, and machine learning can aid investment decisions, successful investing encompasses more than relying solely on these tools. When the market experiences a significant decline of 40% or more, it presents an opportunity to seize undervalued assets, referred to as “buying blood in the streets”. However, be cautious of falling into the trap of fashion investing, which may yield short-term gains but fails to consider long-term profitability and dividends.
Income-Producing Assets and the Power of Diversification
Exercise caution when considering assets that don’t generate income. These assets often undergo significant cycles, making it difficult to determine their true value without a yield component. Remember, diversification is the only free lunch in investing. Although it may lack the allure of headline-grabbing strategies, diversifying your portfolio is the only approach that consistently pays off in the long run.
Timing the Market: Focus on Valuations, Not News
When a fundamentally sound company experiences hard times, particularly due to external cycles, it can present an excellent buying opportunity. Rather than trying to predict the market’s bottom, take advantage of the situation if you believe the shares are attractively priced. Negative news typically dominates when a share collapses, so avoid being swayed solely by it. Instead, base your decisions on valuations, as extremely good and bad news tends to influence market sentiment disproportionately.
Diversification as a Shield Against Volatility
Remember, when it seems like things couldn’t get any worse, they often stabilise. Similarly, when it appears that everything is perfect, it rarely stays that way for long. Don’t tether yourself to a single asset class, individual, investment philosophy, trend, book, or fashion. Conduct comprehensive research and investigations to spread your risks effectively.
Investment Gurus: The Exception, Not the Norm
While a few exceptional individuals have thrived in the investment world over the years, they are a rarity. Most investment houses achieve success based on a set of investment principles rather than relying on specific individuals. When seeking advice or guidance, prioritise a comprehensive investment philosophy over the allure of a charismatic guru.
Surviving the Storm: Embracing Dreadful Performance
Every investor and portfolio will encounter periods of poor performance. These moments can be accompanied by sleepless nights and immense stress. However, if your investments are well-diversified, and you have avoided excessive greed, there’s no need to panic. Stick to your chosen path, trust in your strategy, and you will weather the storm.
Avoiding Disasters: The True Measure of Investment Success
Contrary to popular belief, investment success is not solely about finding tomorrow’s winners. Rather, it is primarily about avoiding disastrous investments. While people often ask for advice on what to buy, they rarely consider the potential pitfalls. Exercise common sense: if you don’t fully understand a company, asset class, investment trend, or philosophy, refrain from investing solely based on its popularity and rising prices. Avoid falling into the trap of FOMO and adhere to fundamental rules.
Market Realities and Valuations
Markets excel at reflecting reality and establishing valuations over long-term periods of 10 years or more. However, emotions and transient factors such as politics and weather cycles can heavily influence short-term valuations. As a rule of thumb, if an investment sees a 40% or higher increase within 12 months, it might be wise to sell. Conversely, consider buying when valuations are low.
The Certainty of Current Valuations
Current valuations are among the few truly knowable factors when making investment decisions. While the future remains uncertain, you can always compare current valuations with past cycles for insights. This historical perspective can help you make more informed decisions.
Value vs. Growth: The Battle of Investment Philosophies
Investment philosophies can be broadly categorized into two camps: value and growth, each with its variations. Value investors often have a more sceptical view, drawing on intellectual and theoretical frameworks. They believe they possess more knowledge and often maintain a degree of aloofness from the rest of the market. On the other hand, growth investors are optimistic and forward-looking, always envisioning a brighter future and profitable companies. While the debate between value and growth persists, there is no definitive answer. Growth investors tend to experience periods of significant gains followed by a downturn, while value investors endure extended periods of underperformance, punctuated by occasional successes.
Navigating the Value-Growth Cycles
Investment styles experience cycles, and we have witnessed a prolonged growth phase in technology and related sectors. However, we may now be entering a small value-oriented phase. While an overall growth bias might be preferable, exercise caution when good news and returns become overwhelming. Adjust your strategy accordingly to maintain a balanced portfolio.
Investing with Insight and Awareness
Philosophically, value investing leans more towards intellectual and theoretical foundations. Value investors often believe they possess greater knowledge and understanding, setting them apart from the general investing population. On the other hand, growth investors embrace optimism, envisioning a brighter future and sustained profitability for companies.