The Case For Being Patient - September 2017
At Coronation, we have an unwavering commitment to investing for the long term. We believe an emphasis on valuation discipline over the appropriate time horizon increases the probability of achieving above-average returns. All our actions are aimed at ensuring that we analyse, debate and ultimately value businesses based on their long-term fundamentals. We do not chase share prices or constantly react to the most immediate news flow. By working hard to retain the trust of our clients, we are able to examine how a business performs through multi-year cycles, and this is what we believe gives us a distinct advantage over our average competitor.
Figure 8 illustrates the compelling results, in real terms, that are available to investors who are willing and able to put money in the equity market for very long periods of time (regardless of the sentiment of the day) and then let the power of compounding work for them (as detailed in Concepts that drive investor outcomes over the long term). While an investor who committed R1 to local bonds and/or cash would have seen an increase of 2-3 times in their purchasing power over the past 56 years, an equity investor who made the same commitment would be able to buy 103 times more today.
>> FIGURE 8 REAL PERFORMANCE OF SA EQUITIES, BONDS AND CASH (as at 31 July 2016)
In Figure 9 we illustrate the rewards of adding an active return (as discussed in Expected Returns) to that of the market by having remained invested with Coronation over the long term. An investment in the local equity market 20 years ago would have grown your capital 13.6 times (in nominal terms), whereas a similar investment in the Coronation Equity Fund, which has outperformed the market by 3.2% p.a. after fees (a seemingly small number), would have grown your capital by almost 25 times.
>> FIGURE 9 CORONATION EQUITY
The conclusion is as simple as it is compelling. Invest in the equity markets for long periods of time, stick with winning fund managers for the long haul, and the power of compounding will do extraordinary things for you.
Yet most investors capture only a small fraction of the market return over time. This is because financial markets (and the performance cycle of a fund manager) typically turn when investors least expect them to. Often, the moves are large and, for that reason, a high percentage of the returns that patient investors earn over the long term are made in a surprisingly few trading sessions. For example:
Since 1960 investors who were not invested in the SA equity market for 13% of those trading months received zero return over the 56-year period.
Over Coronation’s entire history as an investment house, investors who missed out on only 8% of our trading months received zero alpha over that 23-year period.