2016’s biggest investment lesson
Great investment decisions are often uncomfortable to make.
It might already seem like a long time ago, but in 2016 equity markets had the worst start to any year ever. In the first two weeks of January the S&P 500 fell 8% and the FTSE/JSE All Share Index dropped almost 7.5%.
There were high levels of fear amongst investors as many headed for the exits. The Nasdaq fell as much as 2.7% in a single day on January 15 as the markets were hit with a wave of selling.
Some individual stocks were particularly hard hit. Diversified miners BHP Billiton, Glencore and Anglo American were all down over 20% in the first three weeks of the year.
There was some pain for banking stocks too. Barclays Africa fell more than 14%, while Standard Bank lost 13%, Nedbank was down 12% and FirstRand fell 10%.
Many investors seeing these kinds of numbers simply pushed the sell button. They couldn’t bear the losses.
However, as the CEO of PSG Asset Management, Anet Ahern, recently pointed out in a note to investors “the best investment decisions aren’t always the most comfortable”.
While it would have been easy to be one of the investors selling these stocks, it would have taken a brave individual to be on the other side of the transaction. However, 11 months later it’s easy to see who made the better decision.
The table below illustrates the drops that these seven stocks suffered in the early part of January against their subsequent performance for the year to date. The performance numbers are measured from each of the stocks’ closing price on December 31 2015 to their lowest point in January, and from there to their prices on Thursday December 15.
| Selected performance of stocks in 2016 | ||
| Counter | January drop | Subsequent rally |
| Glencore | -21.30% | 281.25% |
| Anglo American | -22.74% | 276.69% |
| BHP Billiton | -20.63% | 65.07% |
| Barclays Africa | -14.47% | 28.73% |
| Standard Bank | -13.22% | 53.27% |
| Nebank | -12.12% | 39.88% |
| FirstRand | -10.31% | 37.50% |
Source: Bloomberg
Every one of these stocks has not only made back its January losses, but has climbed beyond where it started the year. In the cases of Glencore and Anglo American, these gains have been exceptional.
Of course it’s easy to see this in hindsight, but the investment lesson is still worth noting. It is is often at moments of panic that one can find the best opportunities.
It’s not easy to do, because you need to be able to make an unemotional assessment in a highly charged environment, but this is what separates great investors from the rest – the ability to see the longer term opportunity through short-term noise.
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