Summit Push - August 2020

Gerhard le Roux

August 2020

Save like a pessimist, invest like an optimist. @morganhousel

I have recently been reminded of the transformative power of compounding in the James Clear book Atomic Habits, where he explores the benefits of incremental change and the way small efforts compounds to create extradentary results. The idea of the “Plateau of Latent Potential” is especially relevant to the process of compounding. Understanding the emotional journey of investing and creating wealth over time will allow you to stay motivated and stay with the plan.

The plateau of latent potential (mercilessly plagiarised below) show the gap between the expected outcome and experience from an investment or a habit. That gap labelled the “Valley of Disappointment”, is due to the non-linear nature of returns over time and our expectation of a straight line to success. The results of our efforts are delayed, and it is not until months or years later that we realise the true value of our hard work and sacrifice. In the same way, your efforts will compound far beyond your expectations as the incremental improvements and sacrifices build on every previous effort.

For the new investor, to create systems that allow you to stay with the course in the beginning years is greatly beneficial, especially where you have not yet breached the plateau of latent potential.

“We do not rise to the level of our goals, we fall to the level of our systems.” James Clear

The following is one of many strategies from the book that may help you on your journey. Make it obvious. Make it attractive. Make it easy, Make it satisfying.

Make it obvious

Every working adult can save some amount of money every week. Maybe it’s R500 or R5000. The amount is not the problem; it’s the behaviour necessary to save it. Clear’s solution: make it obvious. State your intention, commit to it by writing it down, and then do it every week. Start with whatever desired amount you’d like., it's about the starting.

Make it attractive

Now that you are habitually saving, intentionally consider what is so attractive about this new behaviour. Make a list. I find the idea of financial freedom incredibly liberating, so from my monthly income, I pay myself first as a vote towards realizing my independent future.

Make it easy

How easy can you make it to save? Very easy. You could transfer money to your savings account each time you forgo a purchase. You could set up a new account with automatic transfers. You could even put it in your calendar as a reminder. Making it easy reduces the friction that can stall progress.

Make it satisfying

Talk about it with people who want to see you succeed. How satisfying would it be to you to set a savings target and achieve it? You could tell a close friend or your spouse how you have started a new investment habit and how much benefit you have seen. You can make the savings habit as satisfying as you want. You just have to make it personal and authentic.

Remember, with compounding; you experience the most significant benefit at the end.

“Most people overestimate what they can do in one year and underestimate what they can do in ten years.” Bill Gates.

News and Markets

The steady grind in global equities continued in July with talk of a vaccine making headlines. The expectation is that one of the companies showing promise in the development of the COVID 19 vaccine will receive approval for distribution before year-end, hopefully allowing the world economy to enter the post-COVID version of normality. The US market and tech companies, in particular, are still in vogue, leading the global equity recovery.

The US printing press continued at full speed driving global liquidity and providing strong support for the Gold price as investor seek safe havens outside of government currencies. The Gold price reached a record high in July and topped $2000 earlier in the week. The strength in precious metals has driven South African gold and resource companies to support the local market.

Market Returns for July

Actions

Stay the course. The global drive for yield will continue to provide buying support to quality high yielding local and international companies. A balanced approach for South African investors is the most appropriate for long-term money as the returns from bonds, and global equity are most attractive compared to the risks in the local equity market.

The South African Rand re-tested support at the 16.35-16.50 in July. Investors looking to externalise money from the country in the near term should look to opportunities of Rand strength to fund foreign accounts.

Colour Box

Tensions between the United States of America and China escalated significantly in July as the Chinese consulate in Huston Texas was ordered to close and the Chinese, in turn, ordering the closure of a US embassy in China.

I found the below podcast fascinating, and for those who are interested in geopolitics, I would highly recommend a listen.

https://hiddenforces.io/podcasts/new-cold-war-china-orville-schell/

The Bookshelf

To counterbalance the strife in our COVID laced reality, I read the Steven Pinker book, Enlightenment Now: The Case for Reason, Science, Humanism, and Progress. The book is an elegant data-driven assessment of human progress from the age of Enlightenment.

Pinker shows that life, health, prosperity, safety, peace, knowledge, and happiness are on the rise, not just in the West, but worldwide. This progress is not the result of some cosmic force. It is a gift of the Enlightenment: the conviction that reason and science can enhance human flourishing.

Although the world will always have its challenges, we have plenty of reason to feel optimistic.

This information is not advice as defined in the FAIS Act, 37 of 2002, as amended. Trades or securities mentioned herein may not be suitable for all investors. Past returns are not indicative of future performance.

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