The perils and pitfalls of investing

Isaac Moledi

Isaac Moledi

Most people's experience is that investing can be a tricky game that does not get any easier as time passes.

Even the most seasoned fund managers agree that they still don't get it right all the time because the market seems intent on delivering new surprises year after year.

But there are two simple guidelines that Alphen Asset Management fund managers advise investors to stick to in order to smooth the road to capital appreciation.

According to them, timing is crucial. One needs to know when to buy and when to sell.

Though this is something quite difficult to get right, especially over the short-term, Alphen nevertheless advises investors to always use existing economic indicators like the All Share Index to help them in the process.

The most common approach - as echoed by all active managers - is to buy in the market when it is cheap and sell when the market is expensive.

The second, and an even more important guideline, is that investors should be prepared for a longinvestment-time horizon.

"Quality buy and sell opportunities do not come around very often and one can generally count them on your fingers," is the general advice.

Writing in the Alphen Angle, the electronic publication of Alphen Asset Management, the fund managers state the average investor in the All Share Index has experienced an annualised real return of just less than 40percent over the past four years, the reason for this is the mega-earnings experienced by South African companies across the board.

"The long-term average real return is just over 8percent for the All Share Index so we are indeed experiencing special times," they say.

However, their advice is: now is the time to be cautious and the time that one should be accumulating cash so that when the next big buying opportunity arises, you are in a position to grab it with both hands.