Since the arrival of the internet, talks about the “information age” and its many benefits have taken place continuously. Benefits such as cheap, or even free, access to large volumes of information. But the discussion rarely progresses to the potential negative impacts that might arise from too much information. We believe that the benefits of access to information are real, clear, and well-documented, however, as with anything in life, too much of a good thing is generally bad. Not only has the volume and accessibility of information increased but also its frequency, so much so that real-time data has almost become the norm. This creates a unique problem when the goal is to achieve a long-term target. People, in general, have grown accustomed to speed and efficiency, and get frustrated at the mere thought of having to wait, especially if the immediate environment seems uncertain. This picture is the polar opposite of investing.

Investing, especially in equity markets, requires a long-term mindset, with very little attention being given to the noise surrounding you in the short term. Warren Buffett said it perfectly: “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes”. This is generally the approach that most investment managers take when selecting assets to include in their portfolios, and it increases the probability of achieving optimal performance over the long term. Unfortunately, investors are not always as patient, and often impair their investment performance by making short-term decisions based on emotion, or as we will elaborate further, information overload. The average retail investor receives performance reports at least quarterly, with investment fact sheets piling into their inboxes monthly. Then we are not even talking about the myriad of competing investment managers force-feeding their marketing material via e-mails, social media, phone calls, and even airport terminals. No wonder the average investor feels overwhelmed by the investment question and second-guesses their decisions at every corner!

Investment managers are also being forced to adapt to the “information age”, not only in terms of the changing investment landscape but also from a client management perspective. Owing to the frequency with which investors can access investment information, and the vast amounts of alternatives being marketed to them, investment managers are being pressured to make shorter-term investment decisions, limiting their long-term return potential. An example of this problem is the performance differential between retail investments and alternative investments, such as private equity funds. One of the key differences is the investment period. A typical lockup period (the time in which investors cannot withdraw funds) for a private equity fund is at least five to seven years, with infrequent investment information throughout the period. This creates an environment wherein the investment manager can make long-term investment decisions without the pressure of clients withdrawing funds in the short term, which increases the probability of achieving favourable long-term investment performance.

As with most real-world problems, the solutions are, unfortunately, not simple. One approach that can address some of these issues is the bucket approach to financial planning. This approach involves creating different buckets or pockets of investments, each addressing a different investment need with its own investment horizon. This affords the client the much-needed comfort that their unique needs are being addressed, it simplifies how they look at their total investment portfolio, and it increases their chances of sticking to a long-term financial plan. For long-term financial success, we recommend trusting your investment manager, maintaining a long-term mindset, and avoiding getting distracted by short-term noise.

Since the arrival of the internet, talks about the “information age” and its many benefits have taken place continuously. Benefits such as cheap, or even free, access to large volumes of information. But the discussion rarely progresses to the potential negative impacts that might arise from too much information. We believe that the benefits of access to information are real, clear, and well-documented, however, as with anything in life, too much of a good thing is generally bad. Not only has the volume and accessibility of information increased but also its frequency, so much so that real-time data has almost become the norm. This creates a unique problem when the goal is to achieve a long-term target. People, in general, have grown accustomed to speed and efficiency, and get frustrated at the mere thought of having to wait, especially if the immediate environment seems uncertain. This picture is the polar opposite of investing.

Investing, especially in equity markets, requires a long-term mindset, with very little attention being given to the noise surrounding you in the short term. Warren Buffett said it perfectly: “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes”. This is generally the approach that most investment managers take when selecting assets to include in their portfolios, and it increases the probability of achieving optimal performance over the long term. Unfortunately, investors are not always as patient, and often impair their investment performance by making short-term decisions based on emotion, or as we will elaborate further, information overload. The average retail investor receives performance reports at least quarterly, with investment fact sheets piling into their inboxes monthly. Then we are not even talking about the myriad of competing investment managers force-feeding their marketing material via e-mails, social media, phone calls, and even airport terminals. No wonder the average investor feels overwhelmed by the investment question and second-guesses their decisions at every corner!

Investment managers are also being forced to adapt to the “information age”, not only in terms of the changing investment landscape but also from a client management perspective. Owing to the frequency with which investors can access investment information, and the vast amounts of alternatives being marketed to them, investment managers are being pressured to make shorter-term investment decisions, limiting their long-term return potential. An example of this problem is the performance differential between retail investments and alternative investments, such as private equity funds. One of the key differences is the investment period. A typical lockup period (the time in which investors cannot withdraw funds) for a private equity fund is at least five to seven years, with infrequent investment information throughout the period. This creates an environment wherein the investment manager can make long-term investment decisions without the pressure of clients withdrawing funds in the short term, which increases the probability of achieving favourable long-term investment performance.

As with most real-world problems, the solutions are, unfortunately, not simple. One approach that can address some of these issues is the bucket approach to financial planning. This approach involves creating different buckets or pockets of investments, each addressing a different investment need with its own investment horizon. This affords the client the much-needed comfort that their unique needs are being addressed, it simplifies how they look at their total investment portfolio, and it increases their chances of sticking to a long-term financial plan. For long-term financial success, we recommend trusting your investment manager, maintaining a long-term mindset, and avoiding getting distracted by short-term noise.

There are many rumours going around again about how bad our economy will perform this year, and possibly in the years to come. Many South Africans blame a variety of aspects for this poor performance. If your political convictions lean to the right in South Africa (SA), you have the more erroneous view that government can do a better job than the market when it comes to allocating scarce resources. Your answer to the current low economic growth environment is, therefore, to nationalise resources. However, history shows that, when countries force their populations into this direction, they seldomly put their citizens in a better position. Even in those isolated cases where resource nationalisation leads to the widespread improvement of livelihoods, it does so at the cost of individual freedom, something that South Africans cannot stomach. If, on the other hand, your political convictions lean to the left, you have the less erroneous view that we are underperforming because government has ruined the economy: A free-market approach is not always better but, in this case, it is the lesser of two evils. It is true that government ruined our economy through their unhealthy direct involvement (such as Eskom, state capture, and corruption), which stems from unhealthy policy (wealth redistribution rather than wealth creation), which stems from not having accountable leaders (we all know their names). For this reason, we tend to focus on government when we consider economic performance. Because it all starts, and ends, with government. And, to a large extent, the private sector is only a price-taker in SA.

Government is by far the largest player in SA and, just based on their sheer size, their voice carries the most weight. If you consider government in its totality, including state-owned enterprises, government can represent anywhere between 35% and 40% of the South African economy. But what makes the influence of government so much greater is its ability to dictate policy; it sets the rules that everyone must play by. In this way, government not only influences the economy as its largest participator, but it also impacts everything and everyone else by regulating what the rest are allowed to do, and how they are allowed to do it, or not. So, if policy is unhealthy, everything else will be unhealthy too.

Unfortunately, the South African government has, over time, started to believe the lie that they can create a larger economy by redistributing more. But how is it possible to create more pies by slicing the same pie into smaller pieces? Redistributive policies, such as broad-based black economic empowerment (B-BBEE), can, therefore, at best, lead to social development, but not to economic development. Social development is like handing out fish (or grants): It can only feed someone for a day (or a month), but it creates dependency and places an unrealistic burden on the economic fibre of a country. This is because, over time, more people become more dependent and hungrier, that is, more demanding, and we go from wanting grants to wanting free tertiary education too. Economic development, on the other hand, teaches people how to fish, that is, it creates jobs by increasing the size of the pie or by creating more pies. Economic development thus forces society to become more accountable, not more dependent.

Redistribution cannot create jobs, otherwise unemployment in SA would have improved from the 1994 low of around 22%, and not have deteriorated to 34% where it is currently. Redistribution kept out of check eventually drives a country into the poverty trap. The reason for this is because redistributive policies, such as B-BBEE and policies that protect employees at the cost of employers, cause resources to be allocated sub-optimally. And wherever resources are not optimally allocated, inefficiencies arise, and if inefficiencies compound over three decades, a country falls into the kind of lower-for-longer economic growth trap that SA is currently in.

So, what do we need? We need more accountable leaders in the private and the public sectors. Leaders who can implement policies that create wealth. Leaders who can be held accountable. Leaders who are chosen based on merit. Because of their size and influence, it all starts, and ends, with government.