The presidential address to the nation on Sunday evening, laying out the steps that South Africa is taking to contain the spread of COVID-19, reveals for anyone that had doubts before, that this pandemic is going to impact us all in very practical ways over the next while. While these steps are unsettling to us all on a personal level, to take a leaf out of China’s book, it calls on countries to “overreact” on a massive scale early on. By accepting extreme short-term pain, it reduces the odds of more protracted and greater pain in the future. In the short-term at least, this global response is starkly in contrast to the rather benign outlook with which financial markets entered 2020. We have seen equity markets correct sharply in recent weeks as investors have moved into “risk-off” mode. We wanted to reassure you that RCI has been proactive in reducing exposure to companies that we believe may be more vulnerable to current events. In so doing, we have raised the level of cash in portfolios. The depreciation of the rand has also helped offset the decline in the markets offshore. As a result, your portfolio has held up significantly better than the overall market. The fact that all shares are falling in price, suggests fundamentals have taken a back seat for the time being as forced sellers (those who borrowed money to invest in shares, for example) find that buyers have stepped back from the market. Over the next few weeks, we expect market volatility to persist. We are being patient with the cash levels that have been built up. However, opportunities are beginning to present themselves to build or add to positions in shares that we would be happy to hold for the long term. We are taking a disciplined approach to ensure we take advantage of these and then allow the compounding process to take care of returns over the next few years.
Sell-offs are always extremely testing emotionally. We recently came across a list of simple steps that we hope will help keep us all in a better headspace and, perhaps, most importantly, avoid taking action in the heat of the moment that we regret after:
- Get away from the screen (including phones). Particularly at night.
- Go for a walk.
- Exercise.
- Get into nature.
- Spend time with family and friends. Be fully engaged – don’t spend your time with them thinking about the markets.
- Read about topics that have nothing to do with investing.
- Reduce time spent on social media.
On a practical note, owing to the need for all of us to play our part in minimizing the spread of COVID-19, we have taken the decision that it would be better for you if you were not unnecessarily exposed to risks posed by physical meetings for the time being. Unless it is absolutely essential that we meet in person, we will be engaging with you via conference calls. We have also approached our staff and, although there will be a number of staff in the office, some are working from home and their landline extensions will be forwarded to their mobile phones. We are mindful of the fact that some of our staff have a compromised immune system or live with people who cannot afford to catch the virus and hence made this decision. All of us will have the same access to systems that we have at present and have already been able to work remotely for a number of years. We envisage no disruption to the work flow OR to our communication with all of you, but if you do find you cannot contact us please phone us directly on our mobile phones.
