There is a great deal of excitement in the air with the Springboks having come back in dramatic fashion to clinch back-to-back victories against France and England to make it to the Rugby World Cup finals. This was not England’s only World Cup defeat to SA on the day, they suffered an even bigger loss to the Proteas in the 2023 Cricket World Cup. In the build-up to the final, there have been some key universal lessons.
Getting the basics right
We have not always played the most beautiful or exciting brand of rugby. In fact, the opponents that we have defeated have often played more aesthetically pleasing rugby. However, they have not always got the basics right. This is where we have capitalised, particularly against England. The Springboks have been solid on set pieces, scrums and lineouts and this has made all the difference.
Similarly in finance, the basics are often boring but can make all the difference. Setting out a budget, seeking a financial adviser, having a will in place, conducting a needs-analysis and financial personality assessment are all the backbone to setting out one’s financial and investment objectives, which will be the cornerstone to your personal investment strategy and asset allocation.
It’s not over until it’s over
At some point, in both matches against France and especially against England, it seemed we were going home. However, the Boks kept pushing and looking for weak spots in the opposition until they finally broke through. The old investment adage is that though the best time to start investing is yesterday, the second-best option is today. No matter how late one starts, it is never too late to start investing.
Early losses are not always bad
At the start of the tournament, we suffered a demoralising defeat to Ireland. This is not uncommon in most tournaments. In the previous respective football World Cups where these teams went on to win the tournament, Argentina suffered an embarrassing loss to Saudi Arabia, Spain to Switzerland in their opening match and Italy struggled to make it out of the group stages. In 2019, the Springboks also lost their opening match before winning that World Cup.
When investment portfolios suffer market drawdowns at the start of their investment journey and in the short term, the subsequent rallies that tend to follow, in a well-positioned portfolio, on average last longer than the drawdown periods and outweigh the losses in the long term. Furthermore, losses while the portfolio is being built up are smaller in nominal terms and have sufficient time to recover before the end of the investment period.
It is for this very reason that younger individuals with longer-term investment objectives of wealth creation are encouraged to invest in portfolios with sufficient allocation to equity markets. These will provide the bulk of above-inflation long-term returns at the cost of short-term volatility. Overconservative asset allocations with long-term growth objectives may be comforting in the short term, but typically disappoint in the long term.
Diversification is key
Springbok captain Siya Kolisi responded to criticism of one of the players missing kicks. In true Kolisi fashion, he defended him and highlighted the importance of playing as a team irrespective of who is not playing well on the day. An important statement by Kolisi was that every single individual will not always play at their best at every single game, but what is important is leaning on the diverse skills and abilities of the team as a whole.
Our cornerstone investment philosophy is diversification, whose core objective is to protect our clients’ investment portfolios during periods of massive drawdowns while maintaining upside participation when markets rally. This is for two main reasons; firstly, we recognise that not all our calls will be right, and secondly, even when our calls are right, not all asset classes and sectors will rally at the same time. Having sufficient exposure in the various asset classes and sectors ensures that you continue protecting and growing your wealth through the different market cycles, while benefiting from the active management and tilts we provide to maximise the returns we achieve while managing the risks we take.
Outcomes matter
Ultimately, we would not be as excited had the Springboks not won the games that they did. Similarly, our hopes are to defend our title and win against the All Blacks, making history to become the first nation to hold the title four times.
In investment management, the return that you give investors matters. Often, investment professionals get into too many technical details around their philosophy and process, which is great, but we should not lose focus of what we deliver to our clients because that is what they experience.
What we deliver should also be measured in accordance with the set objectives and time horizons. The higher the wealth creation target, the longer the investment period needs to be, and the more focused on income provision and wealth protection the objective is, the shorter the term of measurement needs to be. Our mindset and activities as investment professionals should always be anchored on achieving the best client outcomes given their objectives and constraints in a repeatable fashion.
With respect to our top pick for the rugby, we are bullish on the Springboks and wish them the best of luck in the finals.
• Smith is chief investment officer at Absa Global Investment Solutions, Stockbrokers & Portfolio Management.
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