By Chikuni Shenjere-Mutiswa
AS a small town boy, away from home and abandoned in boarding school for the first time, I had done an excellent job researching and analysing the multiple dangers that a new recr
uit would likely face at a tough boys-only high school. This is not different to the current operating and regulatory environment where an asset class (equities in particular) can quickly fall out of favour because interest rates have suddenly moved against it or the investments have been publicly declared a haven of immoral speculative activity with the traders thriving there needing to be flushed out in the interests of the broader national economy.
Of course time has blunted the memories of that challenging first year at high school but the fear I felt back then, at the mercy of bullying seniors, is not quite unlike the pervasive terror that sometimes seizes me when I’m caught helpless in the downward spiral of a bear market.
The parallels between those school days and the real world do not end there. Living through the torment generously provided by seniors was just a bigger part of the daily tribulations; as first-years we were also required to know a lot of trivia such as the maiden names of prefects’ mothers, their pets’ names as well as have the ability to flawlessly recite Rudyard Kipling’s famous If poem at the whim of any person higher up in that vicious school food chain.
Below is the first paragraph of that classic which is relevant to investing:
If you can keep your head when all about you are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you but make allowance for their doubting too. . .
Constraints of space preclude us from publishing the full text of the poem, but it is fairly easy to get hold of.
“If you can keep your head when all about you are losing theirs”. Those words, and the caveat of making allowance for other players’ doubts, sum up our view for surviving and prospering in the present and future equity markets than.
Yes the local equity market has become more volatile – the standard deviation of daily returns (a common measure of risk) for the industrial and mining indices has almost doubled when one compares the five-year period from June 16 2000 to today with the prior five-year period. As pointed out in last week’s article, the benchmark index had lost 16% since May 19 when the RBZ governor gave his presentation as investors crushed each other at the door driven by the fear that the gravy train had pulled up at its last stop and confidence started to shred – since then it has surrendered another 9,7%.
Yet fundamentally, everything points to a significant increase in equity prices.
In preparation for the turning of the equities ship we sign off with a cautionary note. Investors are advised to resist the bazaar-rooted instinct of excessively haggling with stockbrokers over the price they pay for a parcel of shares – it is almost inevitable that the extra 5% one declined to pay (or accept as a haircut when selling) will become the source of much regret when prices double. Or halves is the case in the more recent, painful memories.