Good news turned into bad news? Deon Gouws How safe are your assets? Alan Noik Happy UCITS 1st Anniversary Jarrod Cahn / Rupert Silver Capitalism in the 21st century Ainsley To Value from a 90s darling Trevor Black ...and more Message from the CEO | Roy Ettlinger | @Ettlinger_Credo Are there any lessons we can apply to help establish an approach to best achieve our future financial objectives? 02 | Issue 28 | Time in the market At the time of writing this article, undoubtedly different, hence in my These figures include both the we have just experienced a very view this learning is best applied to technology bubble bursting in turbulent October, with most all those investors who are able to 2000/2001, as well as the global of the world equity markets all take a long-term view, which after all financial crisis of 2007/2008. suffering heavy falls. The S&P 500 is what investing should be all about. had its worst month on record During the same two decades, the US since September 2011, ending One should not be “driving whilst consumer price index increased by a approximately 7% down. looking only in the rear-view mirror”, total of 54.8%, which means that an but rather concentrating on the investment in the S&P 500 provided a It is perhaps appropriate, or at the windscreen to see what lies ahead. compound real return of circa 2.2% very least instructive, in this, our last p.a. over the full period (i.e. adjusting newsletter in our 20th anniversary year, This is a good analogy as to for the effect of inflation). that we reflect on the performance how investment decisions are of the S&P 500 index over the past best made, however it remains Once again, as we have articulated couple of decades. What can we interesting to examine past on numerous occasions, I come to the learn from the S&P 500 performance performance, albeit we have the obvious conclusion, which is to remain over these past 20 years? Are there age-old investor warning, “that past invested in the market for the long any lessons we can apply to help performance is not an indicator of term, and the old adage that establish an approach to best achieve future performance”. it’s not timing the market, our future financial objectives? The level of the S&P 500 on 1 but rather time in the At this stage I will caveat what November 1998 was 1,144.43, and market that delivers follows by stating that each 20 years later, on 2 November 2018 superior investment person’s financial requirements are it had grown to 2,720.46, a multiple returns in the long run. of 2.38 times, or an increase of 138%, which translates to a 20-year This is the investment philosophy compounded IRR of circa 4.5%. that we at Credo have continuously espoused ever since we started 20 years ago and continue to promote as we peer through the mist currently fogging our windscreen. (See the next article by Deon Gouws, our CIO). I would like to end off this introduction by strongly suggesting that clients not only remain invested, but also take advantages of the period when stock markets around the world go on sale. credogroup.com | 03 Deon Gouws - CIO | @DeonGouws_Credo Good news turned into bad news? A number of clients have been the recent March 2009 stock In trying to offer reasons for the asking for our thoughts in the wake market low. sell-off, it needs to be pointed of turbulent financial markets over out that the “good news has the past couple of months, in Having said that, we also accept started turning into bad news”, particular following Wednesday 10 that the long term is the sum of the specifically as far as the US market October when the US market fell short term, hence we’d like to offer is concerned. Whether or not more than 3% in a single session. some points of commentary in the one is prepared to give President At the time of writing, the S&P 500 is wake of this recent volatility. Trump any of the credit (most of trading at a level some 7% below the positive momentum started a its all-time high which was reached Firstly, it should be borne in mind number of years ago, i.e. during in the second half of September. that financial markets – especially the Obama days), it has become equities – have been in expensive evident in the past few months Firstly, we would like to territory for some time now; we that the American economy is now reiterate that we are have been pointing this out to healthier than practically anytime clients in an attempt to manage in the last two decades or more: long-term investors at expectations. In fact, we were unemployment is at all-time lows, Credo, and we try to probably early when we started as a result disposable income is up ignore most of the shorter making this point a few years ago; and consumer confidence is high. having said that, it has always term noise and volatility. been our philosophy that one This is likely to have an accelerating Accordingly, we try not to get should stay invested through the impact on inflation, hence the worked up too much when we cycle and we never try to time the Fed is expected to respond in the see drawdowns that are ultimately market, so clients have benefited form of interest rate increases considered to be normal in financial from strong markets in the past, in that could end up being more in markets. In this regard, two summary accordance with asset allocations number and ultimately higher in statistics stand out – as pointed that reflect their agreed risk level than previously anticipated; in out in separate blog posts / tweets profiles. When a market correction turn, this has started being reflected by US financial advisors Michael takes place as we’ve seen over in the yield curve, with US 10 year Batnick and Charlie Bilello recently: the past few weeks, one can thus rates now being in excess of 3% argue that it is in fact a healthy (higher than any time since the • Going back to 1900, a daily development, at least to some global financial crisis). Ultimately, decline of as much as 4% (or extent: shares end up being less interest rates are relevant in terms more) in the US stock market has over-priced as a result, enhancing of discounting future returns from happened on average once the returns outlook going forward any investment, hence higher rates every 82 days; and from this point onwards (especially translate into lower capital values • This is the 23rd correction in the relevant to those who may be – which explains inter alia stock S&P500 of 5% or more since putting “fresh” cash at work now). market declines. 04 | Issue 28 | Good news turned into bad news? Should one turn bearish as a result? from their highs in an overall market investments (bought at reasonable The other side of the coin is simply which is “only” 7% down from the prices) to begin with, the best to focus on the good news itself, top. If nothing else, this should help strategy is to ignore the volatility and i.e. a stronger economy should the relative performance of our to sit it out until markets recover. The lead to increased profitability which portfolios as we live through a market worst thing to do would be to “blink is obviously good for share prices dislocation. As financial author at the bottom” and sell out at the once all is said and done… the trick Jonathan Tepper tweeted in tongue- worst possible time (and of course is simply to identify those sectors and in-cheek fashion in October: you no-one knows exactly when markets companies that are likely to benefit can pick up bargains in this sell- will start to turn again). For those with quickest and/or most. off... Netflix is trading at 104x EV/ extra cash to deploy, this may be a EBITDA and 80x forward P/E (this good time to start “nibbling” again. Speaking about profitability, the stock has declined even further same Charlie Bilello referred to earlier, since then, and is now trading more Jack Bogle, founder and retired CEO also pointed out recently not only than 25% lower than its all-time of Vanguard, recently said: “I spend that overall S&P 500 earnings are high a short four months ago). about half of my time wondering expected to increase by as much why I have so much in stocks, and as 26% this year, but also that, if this One more thing: we have always about half wondering why I have expectation is in fact met and the steered clear of direct emerging so little.” Market participants may be index ends the year at current levels, market exposure in building our nodding their heads in agreement its P/E ratio would go from 21.4 to discretionary equity portfolios at to the first half of this quote today… 18.3; this would be the first year of Credo, simply because we do not but as night follows day, the time multiple contraction since 2011. want to incur unnecessary risk for will come when you worry more a small uplift in potential return in about the second part again. We’d also like to point our portfolios that are designed to out once again that we be relatively low risk.