Simple investment truths handed down through the generations still have relevance, even in these ever-changing times. Stephen Silcock shares the lessons taught by his grandfather, Alistair Martin, a former chairman and president of the Johannesburg Stock Exchange. He picked up many lessons over 40 years under the tutelage of his grandfather, and till this day practices everything he learnt from the remarkable man. As he puts it, “This was far better than any university degree!”
A legend revealed...
Starting in British Army, Alistair made his way to South Africa to start a career in the equity markets. His speedy progression to the top could be attributed to the forward thinking contributions he made to committee deliberations right from the start. His years as head of the JSE coincided with one of the most tumultuous periods in the markets, including the buoyancy of the 1968 bubble, and inevitable crash in May 1969. This latter event was one that he had forecast, stating beforehand that, “it will be surprising if 1969, as well as providing a continuation of the present buoyancy, does not also produce the quite sickening thud of a major correction. The higher the peak, the steeper the fall.” He was not at all popular for voicing his view – but history proved him unnervingly accurate.
Ten timeless tips
One of the legacies that Alistair Martin left was a hand written piece of paper that included 10 tips that he felt he had learned in the investment arena. These timeless pieces of investment wisdom are still relevant.
- The price paid for a share should have nothing to do with a subsequent decision to hold or sell – this is what behavioural finance writers have subsequently referred to as anchoring.
- There are many reasons to sell a share, taking a profit is not one of them – if the share remains a good investment, do not try to second guess when it will fall.
- The first loss is the best one – admit your mistake, learn from it and move on.
- Where there’s a tip, there’s a tap – think about why the tipster is sharing his gem with you. Maybe he wants to offload?
- Be aware of averaging downwards; be wary of buying more of a share unless it is on behalf of an initial buyer – to use the equivalent military maxim, never reinforce failure.
- Run profits and cut losses – for example, one bad choice which is not eliminated quickly can negate a dozen good choices which improve moderately.
- Never forget the specific needs of a client – remember elements such as the client’s life stage, financial commitments and risk tolerance.
- Never fall in love with a share or sector – we have seen many sectors enjoy their time in the sun (for example, IT shares in the 1990s), only underperform in later cycles.
- Keep a reasonable balance in one’s portfolio: a heavy weighting in one or more shares or sectors increases risk.
- And finally, apart from the taxation aspect there are good reasons for not fidgeting with investments generally. Many shares will reward holding for the long run.
Via Investec
