How COVID-19 reaffirmed the most important investment lesson
18 Jul, 2022

The COVID-19 pandemic no doubt affected the financial markets and how investors engage with their investment portfolios. According to Head of Momentum Collective Investments, Kapil Joshi, when lockdowns were first introduced, asset prices across the globe fell by unprecedented values in just a month. The FTSE/JSE SA Listed Property Index fell by 36.6% in March 2020, its largest monthly decline on record. The list goes on, and no market was immune.

Yet, Joshi asserts, that not all investors reacted to the red ticker symbols in the same way. “Having an investment in the market is critical to wealth creation but sticking to the plan of that investment is even more critical. Emergencies do occur and sometimes it is unavoidable for investors. But as we have seen, the noise created from panic buying and selling is the surest way to lose money.”

The latest Momentum Sci-Fi Report, which analysed the behavioural science of South African financial decisions, revealed that the COVID-19 crash and subsequent market volatility penalised investors that hastily switched the most. As an example, investors that switched from property funds that delivered a -36.6% return amid a tumultuous property market, missed the 36.9% positive return in 2021.

“The evidence from this report reiterated that trying to time the appropriate entry and exit, in and out of the market, through excessive switching simply doesn’t yield results,” says Joshi.

From an investment management perspective, Joshi says one should not make knee-jerk reactions. However, he says it is important to continuously evaluate the opportunity set in investment markets which could lead to tactical tilts being taken when necessary.

“This is not just relevant to COVID but all market cycles. At Momentum, the approach we take starts with assessing the asset class and the realities for that asset class. We then move to various styles that complement our approach to investing, with the final selection being the managers we use.”

It is the combination of these actions that Joshi says helps to deliver risk-adjusted returns through whatever noise is created in the market. He advises all investors to find the right partner.

“The South African investor should partner with an investment manager that has an investment approach that sifts through the noise of events like COVID-19 and builds portfolios that illustrate the resilience through these various market events but also have a demonstrable way in which assets are managed,” concludes Joshi.



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