A man named Rahm Emanuel once said: “Never let a serious crisis go to waste”.

What does this quote mean for investor’s?

True investment opportunities seldomly occurs when asset prices are at all time highs. The real buying opportunity comes when assets are “on sale”, as Warren Buffet loves to say. These “sales” occur when investors can buy the same high quality assets at a discount in price. With global equities losing 20 – 40% many investors view this as a once in a lifetime opportunity to purchase assets at an attractive price.

One such buying opportunity came in the Global Financial Crisis in 2008/9. Equity prices fell 50% as investors sold their “risky” assets. The chart on the right illustrates a portfolio of 75% South African equity & 25% cash (most investors with a Balanced risk profile are invested in a similar portfolio). During volatile times in equity markets, investors have 3 choices: (1) stay invested, (2) switch everything to the safety of cash or (3) switch everything to equity. If investors panicked at the wrong time and switched their investment to cash, it would take a very long time to break-even with the investment value before the crisis. On the other hand if investors remained invested or switched to equity it would take less than a year to recover.

The lesson is obvious, don’t panic and make short-term decisions that will impact long-term outcomes.

We have communicated with many fund managers during this time and the majority of them were buying more equities at these levels. During the last week of the month the JSE All Share increased 20%.
This shows just how quick movements can occur and we encourage investors to stick to their long-term plan.

Be greedy when others are fearful – Warren Buffett

 

Local Economic Update

• South African assets across the board were sold off as investors reacted to the Corona Virus global lockdown on economies.
• Moody’s also officially downgraded South African Sovereign debt to Junk status due to a range of risks in our local economy.
• Local equities lost 11.15% while the All Bond Index also saw a record negative month of 9.73%. Most income funds hold bonds which led to a negative month in most funds.
• All the uncertainty caused the US Dollar to strengthen against most currencies which offset any offshore losses for local investors.

Global Economic Update

• Global equity markets lost value across the world. It was the steepest decline into bear market territory in history. US government bonds was one of the only asset classes that rallied in March as investors flooded the market.
• The US Federal Reserve also indicated that it would employ “unlimited” quantitative easing in order to lessen the effects on the US economy brought about by the pandemic.
• Central banks worldwide took similar measures as the US which will cause already high levels of global debt to increase even more.

SALVO COVID-19 UPDATE

Given the concern and uncertainty created by the Covid 19 pandemic during the month of March, Salvo Capital would like to communicate our response to all of our valued clients & stakeholders.

Operational Update

Salvo fully supports the steps taken by the Government to prioritise the health & safety of the South African public. Our top priorities are the safety of our personnel, complying with restrictions placed upon us by the Government & last but certainly not least, the continuation of high-quality service to our clients. Given the nature of the financial services & implementation of technology systems, we are in a fortunate position to operate remotely from our homes. As such business will continue as normal with all personnel & teams of Salvo moving operations offsite. Clients can contact us via cellphone, email & office landlines.

Investment Management Update

March saw global equity markets enter the most aggressive bear market in history, which took 20 days. As our investors know, Salvo has always placed a large emphasis on risk management & diversification. This conservative approach has led to outperformance of the investment mandates we manage during these volatile times. The biggest risk we see in the current environment is not the short-term volatility but rather investor behavior that can destroy the probability of achieving long-term goals . Emotions take hold of investors as they see their investments lose value but as we will discuss in this newsletter, we encourage investors to take a Long-term view of investments & not react to short-term volatility.

Salvo remains committed to achieving the goals of our clients and to effectively manage risk in the current market environment. Should you have any additional concerns or questions, please do not hesitate to contact us through email or telephonically. We wish all stakeholders well in this trying time and thank you for your continued support.