Navigating South Africa’s 2024 Election Outcome

The 2024 South African elections introduced significant changes, disrupting the political landscape. The African National Congress (ANC), which has ruled for three decades, lost its parliamentary majority, winning only 39.77% of the National Assembly vote and 159 out of 400 seats. This outcome means the ANC must seek coalition partnerships both nationally and within three provincial legislatures. With 16,025,198 votes cast and a 58.61% turnout, the election’s impact is profound, leaving investors anxious about the potential coalition configurations.

Volatility creates buying opportunities for skilled asset managers who analyse numbers to determine the right course of action while remaining unemotional. Political changes can make us feel vulnerable, but it’s best to remain calm when investing.

Warren Buffett, one of the most successful investors of all time, sums it up nicely – “The stock market is a device for transferring money from the impatient to the patient.”

The cost of missing the best days in the market

As historical data reveals, the best days in the market often happen amid chaos and heightened volatility. Missing out on these days puts your long-term returns at risk. Research demonstrates that even a small misjudgment in timing the market can significantly impact your returns. To make matters worse, many of the best market days follow the worst. So, if you exit the market during a downturn, you can miss out on the subsequent rebound.

Imagine the growth of a bamboo tree. For years, it may seem as though little growth has happened on the surface. Underneath the surface, however, it has developed a complex root system that provides a strong foundation for future growth. When it finally sprouts above the surface, the bamboo tree can grow several feet very quickly.

This analogy mirrors the importance of staying invested. Like the bamboo tree’s growth, your investments may not always show immediate returns but over time, and by remaining invested, you create a strong investment foundation that can grow significantly in the long term.

With investing, the temptation to time the market can be strong. It might seem easy to buy when prices are low and sell when prices are high but evidence shows that market timing is challenging and nearly impossible. Investors often sell prematurely (missing out on potential gains), don’t know when to buy back in, or hesitate to invest at all during uncertain times. In contrast, staying invested through market highs and lows has historically generated competitive returns, especially over the long term.

Market rebounds can happen quickly and furiously, and losing out on only a few outlier days can significantly influence your overall return. The cost of missing just a few of the best days can be substantial. Attempting to time the market requires skill, nerves of steel and a track record of consistent success – and even then, success is not guaranteed. If there were foolproof signals for timing the market, everyone would use them.

Using the S&P 500 as an example – the second-best day in 2020 followed right after the second-worst day. Similarly, in 2015, the best day of the year happened just two days after the worst. Oddly enough, the worst market days typically appear during bull markets (in other words, periods when markets keep going up).

Let’s consider the South African market, using the JSE All Share Index’s growth from 1 December 1997 to 31 May 2024 to illustrate the cost of market timing. As can be seen in the graph below,

  • If you had invested R100 on 1 December 1997, your fund value would have been R1 375.80 on 31 May 2024.
  • If you missed the best five days, your fund value would have been R1 165.20
  • If you missed the best 20 days, your fund value would have been R562.70
  • These numbers highlight the significance of staying invested.

Exhibit 1 | JSE All Share Index Annual Growth of R100 (1 December 1997 – 31 May 2024)

Source: Factset. Data as 31 May 2024. Past performance is not a reliable guide to future performance. For illustrative purposes only and not indicative of any investment.

Source: Factset. Data as 31 May 2024. Past performance is not a reliable guide to future performance. For illustrative purposes only and not indicative of any investment.

Key Takeaways:

  • Patience and consistency are crucial: Consistent investing helps you build a strong financial foundation for long-term wealth creation. Patience is key.
  • Take a long-term perspective: Similar to a bamboo tree’s sudden and rapid growth after seeming inactivity, investments often yield significant returns over the long term. Do not be discouraged by short-term fluctuations.
  • Avoid abrupt decisions: Selling out of your investments or exiting the market during downturns can prevent you from benefiting from subsequent rebounds.
  • Diversification can be beneficial: Just like a bamboo tree’s extensive root system supports its growth, a diversified portfolio provides a solid foundation for your investments, spreading risk across various assets and market conditions.
  • The only way your investments can grow, is if you are invested: Delaying investing can hinder you from reaching your financial goals. The only way to reap the rewards of investing in the market is by saving and investing.
  • Know the value of quality financial advice: A financial advisor can help you stay on the right investment path. Financial advice is essential for building and maintaining a sound financial plan, managing risks, achieving financial goals, and making informed decisions that can significantly impact your financial well-being.

In conclusion

As we navigate the aftermath of South Africa’s 2024 election, marked by significant shifts in political dynamics, it’s crucial to remain rooted in resilience.

Volatility isn’t all negative and can present opportunities. The lessons gleaned from the JSE All Share Index’s historical growth echo the significance of remaining invested. Only a few missed days can have a significant impact on long-term returns.  Like the bamboo tree’s growth, the key to financial success lies in patience, consistency, and a long-term perspective.

Marilize Van Zyl

Author: Marilize Van Zyl

Portfolio Specialist – OIG