2010!!

Good Luck for 2010, this will be a defining year as far as the sustainability of the economic recovery goes. One of 3 things can happen:

• Everybody can sit and wait to see what will happen resulting in the market moving sideways.
• The predictions of a double dip recession will materialise and we will see another 40% fall.
• The work done by governments in 2008/2009 to stimulate the economies will work and we will see markets grow at a moderate pace.

If you read the newspapers, experts are divided 50/50 between points 2 and 3, in other words, nobody has a clue!

2009 was easier to predict the direction of the markets. After a 40% drop the next direction would be up, the timing was uncertain. Evidence of this can be seen in the 10 shares I chose in April 2009 and discussed in my June Blog. I chose 10 shares based on their NAV valuation and reputation of the companies, the result was a 42% average return.

For 2010 I would play the game as follows:

• Interest rates would remain stable in SA.
• Only the companies with solid earnings growth will reap the benefit of higher share prices.
• Small marginal companies will suffer.
• The Rand will weaken, if not in 2010, then in 2011!

Based on the points mentioned, I would follow the following investment strategy:

• Stay in cash for any short term requirements (3-4 years worth).
• Invest 80% of your longer term money in bigger, solid companies. Unit Trusts can be used with such a mandate if you don't buy direct shares yourself. SATRIX DIVI and RAFI still offer a well diversified, low cost investment.
• Keep the remaining 20% in cash and wait for dips in the market to invest or invest this amount over a 12 month period using a monthly debit order.
• Make sure you invest half of this amount in international markets to protect yourself against the weakening of the Rand.
• If you have money that you can save on a monthly basis, get the debit order going and forget about it!

At the end of the day you have to remember:

• Investing in cash over the longer term is a dead investment.
• Never be impatient with the return on a share investment. If you can't wait for the return, don't do the investment.
• If you invest in a company that has been going for 20 years, chances are that even if the market drops by 40%, it will bounce back as before.
• Never compare your returns with that of your neighbour. Only focus on getting an after tax and cost return that outperforms Inflation.
• Spend less than you earn!
• Get rid of debt!

Some of us have to work harder for our money than others. Some are lucky and they get a couple of good breaks in life. Some inherit wealth and they have no financial concerns and others had financial peace of mind and lost it. At the end of the day none of this will matter if your mindset is one of making the best with what you have got, contributing to society where you can and taking pride in what you do. We need not eat the best food every day or live in the biggest house or drive the smartest car to experience contentment in life. The secret is in appreciating the small things like watching the sun set over the Atlantic or watching a bird building its nest in the garden.

Nothing is permanent, everything changes. If you can prepare for these changes in any manner, you will stay ahead of the game!