Investing: Long term lessons for 2018
2018 has been an emotional rollercoaster for investors in both local and international markets. The global investment landscape is in the midst of considerable change driven by rising US interest rates and the potential US-China trade war. Added to this, South Africa faces its own economic growth challenges and a potential Moody’s sovereign credit rating downgrade. Not surprisingly, many South African investors are uncertain about where to invest. Marriott believes that following the investment principles outlined below will stand you in good stead during these turbulent times and for the years ahead.
Invest for income and let the capital take care of itself. Marriott only invests in securities that provide reliable and growing income streams regardless of global slowdowns, exchange rate volatility and varying interest rates. This is because the value of a business is based on the income or earnings it can generate. Only through increasing its income can the value of a business increase, a maxim well known by those running their own businesses. Over the long term, this principle holds true for investments.
Offshore, offshore, offshore. Marriott believes best value is offshore. With dividend yields of some of the largest companies in the world trading on attractive dividend yields, equity valuations in first world markets are presenting investors with a good opportunity to generate inflation beating returns over the next five years. Multinational companies, such as Coca-Cola, Unilever and Johnson & Johnson have consistently produced reliable and growing income, which in turn has led to capital growth. Although listed on first world stock exchanges, these businesses transcend geographic boundaries, and will benefit from the anticipated emerging market consumption boom in the years ahead.
Know what you are investing in. When investing, try to understand in which businesses your money is actually being invested. Don’t speculate with your life savingsSpeculating invariably involves buying and selling investments based on very little fundamental knowledge and typically produces enormous anxiety and poor results in practice. Rather buy and hold companies that form an integral part of the day-to-day lives of consumers, and will continue to grow their dividends regardless of economic conditions.
Don’t pay too much for an income stream. Avoid any investment where the dividend yield is well below the historic average. Paying too much for an income stream will likely result in poor returns over the longer term.
Remember, above all investing is ultimately all about income. Capital growth may receive a great deal of investor attention; however, investing should ultimately be focused on building an income stream to fund a lifestyle. Don’t worry about economic variables which are out of your control. It is difficult to predict interest rates, the future direction of the exchange rate, or the stock market. Rather concentrate on what is actually happening to the businesses in which you are invested and monitor the income produced by these investments.
Robin Hartslief is an Investment Professional responsible for both primary and secondary research in the securities market, as well as monitoring broad macro-economic variables. Robin is a member of the Investment Analysts Society of Southern Africa.