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  • Writer's pictureLisa Perry

No 3. Investor behaviour in times of fear

My favourite subject! The first question to look at; What is the cost of your behaviour during uncertain times or crashes in the market?

Source: PortfolioMetrix

In a perfect world, we would all be able to get out of the market before the crash and back in at the bottom of the crash. In reality if this is achieved it is based on pure lucky and relying on luck is dangerous. As illustrated above, the safest action would be to ride the market wave. However human behaviour is driven by fear which brings me to my all-time favourite diagram, which I am sure you have seen may times in one form or another:

Source: PoprtfolioMetrix

It has been delightful that we have NOT had too many emotional reactions from our clients, and I would tap myself on the back as you sit reading this for NOT succumbing to fear and the bottomless pit of unknowns.

We are all aware of the pain that is suffered during these times and perhaps this is a good time to highlight/ reiterate the benefits of diversification aka not holding all your eggs in one basket. By having a diversified portfolio based on ability to take risk as well as the term of the investment, buffers against the extent of negative returns can be achieved. It is also important to understand that the further you fall, the further or bigger rebound you need to get back to where you started, by limiting downside in your portfolio, you get the satisfaction of seeing positive capital returns quicker however, there is also the other side of the coin, which says, during bull runs you will not participate to the full extend sadly.

Research says that majority of people have a higher emotional reaction to losses than to gain.

My final paragraph is about the elephant in the room. The big R word: Recession. What can you do to equip yourself to survive the unknowns discussed about. Looking at worst case scenario, the lockdown will continue beyond the 21 days and businesses will suffer/ shut up shop or be bought out by the bigger guy or the cash flush guy. With the new world industries/ businesses could become irrelevant and cease to exist sooner than anticipated.

1. Stay calm and breathe

2. Make sure you have a flush emergency fund, this should carry 2-3 months’ worth of monthly expenses

3. Relook at your budget and change your spending habits today, easy in this environment, when you can’t spend money.

4. When spending money, ask yourself the question: Do I NEED this or do I WANT this; If I don’t buy this, where would the money be better used

5. Dare I say it: Update your CV

6. Do not take on extra debt; I would even go as far as to say try and reduce debt sooner rather than later

7. Get creative income; the online world is your oyster


My final message: Keep safe and positive. South African’s have a wonderful way of pulling together when we feel the enemy is banging at the door.

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