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Is This the New Normal in Investing, or Do Timeless Lessons Still Apply?

The global investment landscape is shifting dramatically. Between the rise of technology-driven markets, geopolitical upheavals, pandemic aftershocks, and sustainability pressures, many wonder whether we have entered a “new normal” that requires abandoning traditional investment principles. Are the fundamentals still relevant, or do they need to be reframed in today’s context? While the tools, markets, and external factors may change, the bedrock principles of investing remain vital. We believe that the key lies in adapting timeless lessons to new challenges.

The “New Normal” Defined The phrase “new normal” emerged during the 2008 financial crisis, but its relevance has grown in recent years. It signifies an environment where traditional assumptions no longer hold, due to structural disruptions. Today, the “new normal” is shaped by several factors:

1. Digital Transformation: AI, blockchain, and fintech are reshaping industries, creating opportunities in sectors like cloud computing, cybersecurity, and digital payments. Companies that once struggled with traditional valuation metrics are now dominating global markets.

2. Geopolitical Realities: Trade wars, energy crises, and regional instability have made global markets volatile and interconnected. For investors, this means recalibrating risk in a world where shocks can ripple faster than ever.

3. Sustainability and ESG Investing: Environmental, social, and governance (ESG) considerations have moved from niche concerns to mainstream priorities. Investors are increasingly favouring companies with strong sustainability credentials, impacting valuations and strategies.

4. Post-Pandemic Shifts: The COVID-19 pandemic accelerated remote work, e-commerce, and healthcare innovation, creating winners and losers. It also tested the resilience of traditional asset classes like property and bonds.

In such an environment, sticking rigidly to old norms could be limiting. However, discarding foundational principles could prove equally dangerous.

Timeless Lessons: The Core of Solid Fundamentals

Despite the noise of latest trends, certain investment truths have stood the test of time. These principles provide a framework that can accommodate innovation and unpredictability:

1. Diversification: The adage “don’t put all your eggs in one basket” remains critical. Diversification across asset classes, sectors, and geographies helps mitigate risks. Even in a high-tech, interconnected world, the benefits of diversification have not diminished.

2. Long-Term Perspective: Markets are inherently cyclical. While short-term trends like meme stocks or speculative bubbles capture headlines, they often burn out quickly. A disciplined focus on long-term growth helps investors weather volatility.

3. Valuation Discipline: Fundamentals like earnings, cash flow, and balance sheets still matter. Although some tech giants thrive on forward-looking metrics, ignoring valuation discipline can lead to overpaying for future promises.

4. Compounding: Harnessing the power of compounding over decades is a lesson reinforced by investing legends like Warren Buffett. This principle thrives on consistency and patience, regardless of the environment.

5. Emotional Control: Fear and greed remain powerful forces. Behavioural biases drive irrational decision-making, especially in volatile times. Staying grounded in data and avoiding knee-jerk reactions is essential.

Reconciling the Old and the New

The modern investment landscape requires not abandoning fundamentals but enhancing them with new insights. Here’s how timeless lessons marry today’s realities:

1. Diversification with a Tech Edge: While diversification is essential, investors must also acknowledge the outsized influence of tech giants. A portfolio today might include a higher weighting of technology-driven sectors while balancing traditional industries.

2. Valuation in the Context of Growth: For high-growth industries like AI or biotech, traditional valuation metrics may need reinterpretation. Investors should seek a balance between paying for potential and avoiding speculative bubbles.

3. Incorporating ESG: Fundamentals now include factors like carbon footprints, labour practices, and governance quality. Companies excelling in these areas are increasingly viewed as lower-risk, long-term bets.

4. Adapting to Geopolitical Risks: Diversifying geographically means more than spreading across countries; it involves understanding regional dynamics and supply chain dependencies.

5. Digital Tools for Emotional Control: Technology offers tools like algorithmic trading and robo-advisors to help investors remove emotion from decision-making. However, human judgment remains indispensable for nuanced situations.

Conclusion:

While the investing world has undoubtedly evolved, the principles underpinning long-term success remain remarkably stable. The key is to embrace change without losing sight of the basics. Diversification, valuation, and emotional discipline still serve as anchors in turbulent waters. At the same time, integrating new realities like technological innovation, ESG metrics, and geopolitical risks ensures relevance.

The “new normal” does not render timeless lessons obsolete; instead, it challenges investors to reinterpret and apply them with fresh perspective. By combining the old with the new, investors can navigate uncertainty and build wealth for the future.

Keep well,
Alan

Many of us experience adversity that has a lasting impact on our physical and emotional health. This article was inspired by a recent book I read by Oprah Winfrey and Dr Bruce D Perry titled “What happened to you,” which suggests that what happens to us in our childhood has a profound impact on our emotional responses and defines our patterns of behaviour into adulthood. By understanding our past, we can clear a path to our future, especially when it comes to personal finance and investment planning.

Money matters more than just the numbers in your bank account; it is a reflection of deeper psychological and behavioural patterns. From an early age, we begin to form associations with money that shape our financial habits, attitudes, and ultimately, our financial well-being. But why do some people view money as a source of security, while others see it as a source of stress or a tool for power? The answer often lies in the question, “What happened to you?”

The Impact of Early Experiences
Our earliest experiences with money set the stage for our lifelong financial behaviours. These experiences can range from witnessing how our parent’s handled finances to the socio-economic environment in which we were raised. If you grew up in a household where money was scarce, you might have developed a scarcity mindset, constantly worrying about not having enough. This could lead to behaviours like hoarding money or, conversely, overspending to cope with the stress of financial insecurity.

On the other hand, if you were raised in an environment where money was abundant and freely spent, you might have developed a more relaxed attitude toward money. However, this can sometimes lead to underestimating the importance of saving or being frugal. The key point here is that early exposure to money-related behaviours and attitudes significantly influences how we perceive and manage our finances as adults.

Behavioural Conditioning and Money Scripts
Psychologists have identified “money scripts,” which are unconscious beliefs about money that are formed early in life and are often passed down through generations. These scripts can be positive or negative, and they tend to operate under the surface, influencing our financial decisions without us even realizing it.

For instance, if you were taught that “money is the root of all evil,” you might unconsciously sabotage your financial success because you associate wealth with negative traits. Conversely, if you believe that “money will solve all your problems,” you might find yourself in a cycle of constantly chasing after more money, believing that it will bring happiness, even when it does not.

These money scripts are powerful because they are tied to deep-seated emotional and psychological needs. For example, someone who grew up in a financially unstable environment might develop a money script that equates having money with safety and security. As a result, they might become overly frugal or obsessively save to the point where they deprive themselves of enjoying life.

The Role of Trauma and Financial Behaviour
Trauma, especially financial trauma, can have a profound impact on your relationship with money. Financial trauma can result from events such as job loss, bankruptcy, or even growing up in poverty. When you experience financial trauma, your brain may start to associate money with danger, triggering a fight-or-flight response whenever you are faced with financial decisions.

This response can manifest in many ways, such as impulsive spending, avoiding financial matters altogether, or becoming overly controlling with money. For instance, someone who has experienced a significant financial loss may become risk-averse, missing out on opportunities for growth because they’re too afraid to invest. Conversely, someone who has experienced financial deprivation may become a compulsive spender, trying to fill an emotional void with material possessions.

The Influence of Social and Cultural Factors
Your social and cultural environment also plays a significant role in shaping your relationship with money. In some cultures, money is closely tied to status and success, leading people to associate their self-worth with their financial status. This can create a constant pressure to earn more, spend more, and display wealth as a measure of personal value.

Social factors, such as peer pressure and societal expectations, can also influence your financial behaviour. If you are surrounded by people who prioritize material wealth and consumerism, you might feel compelled to keep up, even if it means living beyond your means. Conversely, if your social circle values frugality and financial responsibility, you might be more inclined to adopt those behaviours.

Breaking the Cycle: Developing a Healthy Relationship with Money
Understanding the behavioural roots of your relationship with money is the first step toward developing healthier financial habits. By recognizing the money scripts and emotional triggers that drive your financial behaviour, you can start to reframe your mindset and make more conscious financial decisions. One effective approach is to practice mindfulness around money. This means becoming more aware of your emotional responses to financial situations and questioning the underlying beliefs that drive those responses. For example, if you notice yourself feeling anxious about spending money, ask yourself why. Is it because of a fear of not having enough, or is it tied to a deeper emotional need? Another crucial step is to educate yourself about personal finance. Knowledge is empowering, and the more you understand about how money works, the more confident you will feel in managing it. This can help you break free from negative money scripts and develop a more balanced and positive relationship with money.

Conclusion
In conclusion, the way you manage money is deeply influenced by your past experiences, emotional needs, and social environment. By understanding what happened to you and how it shaped your financial behaviours, you can take control of your financial future and cultivate a healthier, more fulfilling relationship with money.

In the realm of personal finance and wealth accumulation, the concept of compounding often takes centre stage. However, within this broader notion lies a more nuanced and less discussed phenomenon known as “quiet compounding.” This approach, characterised by consistent, understated growth and disciplined financial habits, holds the key to substantial long-term wealth accumulation. Understanding quiet compounding requires appreciating the subtleties of patience, discipline, and the long-term perspective it demands.

The Essence of Compounding
To grasp the essence of quiet compounding, it is crucial to first understand the fundamental principle of compounding itself. Compounding occurs when the returns on an investment generate earnings, and those earnings, in turn, generate more earnings. This creates a snowball effect where the growth becomes exponentially larger over time. The power of compounding is best illustrated by the example of investing a small amount regularly over an extended period. For instance, investing R100 a month with an average annual return of 8% can grow to over R150,000 in 30 years.

The Quiet Approach
Quiet compounding emphasises steady and consistent financial behaviours rather than chasing high-risk, high-reward opportunities. This approach requires a mindset shift from seeking immediate gains to valuing long-term growth. One of the foundational principles of quiet compounding is living below ones means. By spending less than you earn and investing the difference, you set the stage for your money to grow quietly and steadily.

The Role of Patience and Discipline
Quiet compounding thrives on patience and discipline. The allure of quick profits can be tempting, but true wealth accumulation through quiet compounding demands resisting this urge. It involves sticking to a well-thought-out financial plan, even when market conditions are volatile or when other investment opportunities seem more lucrative. This disciplined approach ensures that you do not disrupt the compounding process by making impulsive decisions.

The Impact of Consistency
Consistency is a cornerstone of quiet compounding. Regularly contributing to investment accounts, such as retirement funds or diversified portfolios, ensures that the compounding effect remains uninterrupted. Automatic contributions to investment accounts can help maintain this consistency, making it easier to stick to your financial goals without the need for constant monitoring and decision-making.

Diversification and Risk Management
An often-overlooked aspect of quiet compounding is the role of diversification and risk management. By spreading investments across a variety of asset classes, you reduce the impact of any single investment’s inferior performance on your overall portfolio. This risk management strategy helps maintain the steady growth essential for quiet compounding. It is about finding a balance between risk and return, ensuring that your investments continue to grow steadily without exposing you to unnecessary risks.

The Long-Term Perspective
Quiet compounding requires a long-term perspective. It is not about making a quick fortune but about building sustainable wealth over decades. This perspective helps investors stay focused during market downturns and resist the urge to make hasty decisions based on short-term market fluctuations. Understanding that wealth accumulation is a marathon, not a sprint, is crucial for embracing the quiet compounding approach.

Avoiding the Pitfalls of Comparison
One of the biggest challenges in embracing quiet compounding is resisting the urge to compare oneself to others. In today’s age of social media, it is easy to become envious of others’ apparent financial success and feel pressured to emulate their investment strategies. However, quiet compounding necessitates a focus on personal financial goals and discipline. Comparing oneself to others can lead to impulsive decisions and derail the steady progress that quiet compounding fosters.

Real-Life Examples
Warren Buffett, one of the most successful investors of all time, is a prime example of quiet compounding in action. His wealth was not accumulated overnight but through decades of disciplined investing and a long-term perspective. Buffett’s strategy of investing in fundamentally sound companies and holding onto them for the long haul exemplifies the power of quiet compounding. Consider the story of Grace Groner, a secretary who worked for Abbott Laboratories for 43 years. She purchased three shares of Abbott stock in 1935 for $60 each. By reinvesting the dividends and holding the stock for over seven decades, her investment grew to over $7 million by the time of her death in 2010. Groner’s story is a testament to the power of quiet compounding and the impact of long-term, disciplined investing. Another example is Ronald Read, a janitor and gas station attendant who amassed an $8 million fortune through quiet compounding. Read invested in high-quality dividend-paying stocks and held them for decades. His frugality, consistent investing, and long-term perspective allowed him to quietly build substantial wealth without drawing attention.

Conclusion
The journey of quiet compounding may be understated and gradual, but its results are profound, proving that true wealth is built quietly and steadily. By focusing on personal financial goals and avoiding the pitfalls of comparison, individuals can stay on course and realise the full potential of quiet compounding.

In the labyrinth of existence, where the paths of investment and life intersect, lies a profound riddle – the quest for happiness. It is a pursuit that often seems elusive, with many wanderers seeking it in external treasures: wealth, success, and material possessions. Yet, the true essence of happiness may not lie in the accumulation of these externalities, but rather in the journey itself, and in the alignment of one’s investments with the values that define a meaningful life.

To unravel this riddle, let us first delve into the realm of investment. Traditional investment wisdom often equates success with financial gains, measured by portfolio growth and market returns. However, such metrics only scratch the surface of true wealth. While financial prosperity undoubtedly plays a role in securing comfort and stability, it alone does not guarantee happiness. Consider a scenario where an investor amasses significant wealth through shrewd financial manoeuvres. They may achieve impressive returns, accumulate luxurious assets, and bask in the admiration of society. Yet, beneath this facade of success, there may linger a profound sense of emptiness. The relentless pursuit of wealth may have led them astray from the deeper dimensions of life – the bonds of friendship, the joys of creativity, and the fulfilment found in contributing to a greater good.

In contrast, imagine another investor whose portfolio may not boast astronomical figures, yet is meticulously crafted to reflect their values and passions. They invest in companies aligned with their ethical principles, support causes they believe in, and prioritize long-term sustainability over short-term gains. Despite facing fluctuations in the market and moments of uncertainty, this investor finds contentment in knowing that their investments reflect their authentic self.

Thus, the riddle of happiness in the realm of investment lies not in the pursuit of wealth for its own sake, but in the cultivation of a portfolio that resonates with one’s innermost values and aspirations. True wealth emerges not from the digits on a financial statement, but from the alignment of financial goals with the principles that define a meaningful life.

Now, let us extend this inquiry into the broader canvas of life itself. In the hustle and bustle of modern existence, it is easy to succumb to the pressures of societal expectations – to chase after fleeting pleasures and external validations in pursuit of happiness. Yet, like a mirage in the desert, such pursuits often leave us parched, yearning for something more substantial.

In life, happiness is not a destination to be reached but a journey to be embraced. It is found not in the accumulation of possessions but in the richness of experiences, the depth of relationships, and the pursuit of purpose. Just as in investment, where true wealth stems from aligning financial endeavours with personal values, in life, true happiness arises from living authentically, in harmony with one’s beliefs and passions.

The riddle of happiness, then, is not merely a conundrum to be solved but a paradigm shift to be embraced. It calls upon us to reevaluate our definitions of success and wealth, to look beyond the surface and delve into the depths of our being. It beckons us to invest not only in shares and bonds but in the currency of kindness, compassion, and connection.

In the tapestry of existence, the threads of investment and life are intricately woven, each influencing the other in profound ways. By unravelling the riddle of happiness, we unlock the true wealth within – not just in our portfolios but in the very fabric of our lives.

Investing is a dynamic dance between potential returns and the inherent volatility and chaos that come with it, and we have had our fair share of chaos to contend with over the past three years. Too often, individuals are enticed solely by the promise of profit, without considering the tumultuous nature of financial markets. This one-sided perspective can lead to unrealistic expectations and ultimately set investors up for disappointment. To truly understand investments, one must recognise that both sides of the equation, potential return, and volatility, play integral roles in the overall scheme.

Potential Returns: The Allure of Profits The allure of potential returns is what draws individuals to invest in the first place. It represents the promise of financial growth and the possibility of achieving long-term goals. Whether it is through shares, property, or other financial instruments, the potential for substantial gains is a powerful motivator. However, it is essential to remember that potential returns are not guaranteed and are often subject to a multitude of external factors.

Volatility: The Rollercoaster of Risk Volatility is the wild ride that accompanies the pursuit of returns. It represents the fluctuation of asset prices over time, driven by a myriad of factors such as economic conditions, geopolitical events, and market sentiment. While volatility can create opportunities for investors to buy low and sell high, it also introduces an element of risk. Sudden market swings can lead to significant losses if not managed carefully. Embracing volatility means understanding that it is an inherent part of the investment landscape and learning to navigate it effectively leads to positive outcomes over time.

Chaos: Navigating the Unpredictable Chaos in the financial markets is a reality that every investor must come to terms with. It encompasses unforeseen events, sudden market disruptions, and unpredictable shifts in investor sentiment. From geopolitical tensions to unexpected economic downturns, chaos can strike at any moment. While it may seem daunting, it is crucial to remember that chaos also presents opportunities. Successful investors are those who can adapt quickly, make informed decisions in the face of uncertainty, and stay resilient in turbulent times.

The Importance of Balance: To truly grasp the nature of investments, one must acknowledge that potential returns, volatility, and chaos are interconnected components of a complex system. Ignoring any one of these elements can lead to a skewed perspective and ultimately result in ill-informed decisions. Balancing potential returns with an understanding of volatility and chaos allows investors to approach the market with a realistic outlook. It encourages the adoption of diversified investment strategies, risk management techniques, and a long-term perspective. By recognising the dual nature of investments, individuals can position themselves to weather market storms and capitalize on opportunities for growth.

Investing is a multifaceted endeavour that demands a comprehensive understanding of both the potential returns and the accompanying volatility and chaos. When someone presents only one side of the equation, they are doing a disservice to the complexity of the investment landscape. It is crucial to approach investments with a balanced perspective, acknowledging the risks alongside the rewards. By embracing both the allure of potential returns and the challenges of volatility and chaos, investors can navigate the financial markets with wisdom and confidence. Remember, it is not about avoiding the storms, but about learning to sail through them and emerge stronger on the other side.