Like many home owners, we are doing some renovating at the moment. It started with a plan to make a few changes, followed by "renovation creep" into a grandiose plan, then the shock of the first quote and a sober retreat to a scaled-back version of the vision we started with.
You may wonder what this has to do with investing, apart from the fact that, for most of us, our homes remain the largest part of our wealth. What struck me was the range of emotions one goes through when embarking on something as simple as a few changes to your home.
This brought to mind the sage advice of a friend's father when he was trying to time the residential property market by renting for long stretches at a time with three young children. I must also add that this guy was a property specialist with a high-profile asset manager. His father said to him: "Son, you are buying a home; this is not just an investment decision." And it is true that there are undoubtedly some warm and fuzzy criteria when you decide on the place you will make your haven.
Not so when you invest in shares. Emotional decisions have been the downfall of many a stockpicker. Over the next few weeks we will explore some other common mistakes investors make when buying shares.
Let's start with impatience. The talented young designer doing interior work for us asked me recently what I thought of FirstRand, as he owned some of its shares and "they had done nothing in years, although they have gone up R2 in the past few weeks".
The fact is the company has been running and building several successful businesses; the dividend has been growing steadily; and, like many other companies, they needed time to work out the large deals and share issues of the late 1990s. Not something management would call "nothing".
I said I thought they offered good value and that the renewed offshore interest in our banks may help unlock some value in the sector. I mentioned the impact of lower interest rates on borrowing and bad debts, and the positive impact of a stable rand. So, in spite of FirstRand's recent good run, I thought he should hang on to his shares and perhaps add some. His response was, "So I may have to wait six months or so to see a return?"
At this point I had to resist the urge to start lecturing. Instead, I asked him how things were going.
His order book looked full, he had hired a full-time architect, recently bought a new house and become the proud father of twins.
"So how long has it taken you to achieve all of this?" I asked.
Ten years, he said. I think in future he might take a longer-term view when it comes to his portfolio.
When you become impatient when a share moves sideways for a long time, focus on what the company has done and not only on the share price.
- Anet is a certified financial analyst with a B Bus Sc (Hons) from the University of Cape Town. She is the former managing director of BoE Asset Management and has 17 years' investment experience. Anet started her career at Allan Gray in 1986. There she worked in all aspects of investments, from trading to portfolio management. In 1993 she joined Syfrets, where she was responsible for several institutional portfolios. In 1995, she joined BoE as a senior portfolio manager. She later became chief investment officer and then managing director. Anet is taking a break from corporate life, but not from the financial markets - she is keeping busy writing, consulting and following the markets.