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It's a question that seems to be getting a lot of airtime at the moment and if you're into investing and keep an eye on the news and social media, it would not be surprising for you to immediately answer no.
But with all the hype about junk status, mass corruption, failing state-owned enterprises and the SA economy being in tatters, if you have little other choice to get your money working for you in South Africa, what can you do to try and stay ahead of inflation?
Well, a little while ago, I was wondering the same thing and decided to do an experiment.
The Experiment
The question to be answered was simple:
Can the average South African armchair investor make money on the JSE (Johannesburg Stock Exchange) in 2020?
The important part here is the "Armchair Investor" bit. I don't mean people who are savvy at stock trading, follow the financial news and understand the difference between Unit Trusts, ETFs or Index Trackers. I mean people who just have some savings they want to put to work, that they're willing to take some risk on for a good return but don't want to lose everything. I mean Mrs H, my parents or most of my friends, everyday South Africans.
So I decided to take R10,000 / $625 / £480 and stick it into a JSE based ETF. Anyone can buy an ETF, it's super easy. I decided to make it even easier by using a mobile app to do the whole thing. No need to set-up a stock broking account or fill out any forms, just a quick download from the app store and we're off to the races. With regards to the amount, that just felt like a round number, I'll be measuring success of the experiment in percentages so the amount invested is pretty irrelevant.
My app of choice was Franc, a South African based investing app that lets you buy either a money market fund or a JSE ETF or a blend of the two. You can do everything through the app including uploading your ID documents for FICA purposes. It literally couldn't be easier, so anyone who owns a smartphone (the lion's share of the population) can copy what I'm doing. They have no minimum investment so if you've got R1, you can make a start.
I should point out at this point I'm not sponsored or affiliated with Franc in anyway, I used Franc to make this accessible as an approach for anyone, I quite like their app and what they're trying to do but if you have a stockbroking account or a way of buying ETFs already, you probably don't gain much by using Franc.
Next is the choice of fund. That was pretty easy as Franc uses one of the most popular JSE ETFs there is, the Satrix Top 40. The Satrix Top 40 tracks the 40 biggest companies listed on the Johannesburg Stock Exchange, has been around for 20 years and has almost R9bn / $56m / £43m of South Africa's hard earned cash invested in it. Satrix is owned by Sanlam, one of the biggest finance houses in SA so it's fair to say this is about as mainstream as you can get. It also has one of the lowest ETF fees in SA at just 0.1%, however, because we've bought it through Franc, the fee will be 1%, that unfortunately is the cost of convenience.
So we've got some cash, we've got an app, we've picked an ETF, all we have to do is buy it right? Well, yes, but I also don't want some Herbert in the comments saying:
The results are biased because the market was up/down on the day you bought the ETF!
You know what I mean, there's always one. So to keep Herbert at bay, I'm going to do a process called Dollar Cost Averaging. This means, I'll feed the money in over time instead of one big purchase. That will effectively flatten any volatility in the market and make it a truly fair test. It does however make it slightly complicated to measure the performance of 2020 as I'll need to start investing a little earlier than January 2020 to try and replicate what throwing R10,000 / $625 / £480 at it on 1/1/2020 would be like.
But hey, this is my experiment and my rules, get off my case man, I'm trying to help here!
So the master plan went like this:
Feed in R10,00 / $63 / £49 per month starting July 2019
Have R6,000 / $375 / £288 invested by the start of 2020
Achieve R10,000 / $625 / £480 invested by March 2020
Take a performance measurement in December 2020
Voila! and that's exactly what I did, I set-up a scheduled payment of R10,00 / $63 / £49 a month from my internet banking for a total of 10 months and then quickly did nothing, absolutely nothing.
Today is the 14th December 2020, my first payment was made on 14th July 2019. Today feels like a good day to complete the experiment and see how we did.
So......
Was it possible for anyone to make money on the JSE in 2020?
Yes, it was. And much more than you would have expected!
Bearing in mind, that over the period of this experiment SA's economy was deemed junk by not only Moody's rating agency but also by the Fitch rating agency (Those are the only two that really matter), there was a global pandemic (and still is) that locked down the entire economy and the Zondo commission revealed that the country has been riddled with corruption for years (and still is). I didn't know any of this when I embarked on this experiment and if I had known it was all coming, I would NEVER have bet on making money off the JSE in 2020.
However, as of this very moment, my Franc app that I am looking at on my phone right now, says my R10,00 / $63 / £49 is worth......
R13,829 / $864 / £664 Yes, a 38.3% return. Who would have thunk it?
I am flabbergasted to say the least. There was no fancy tricks here, no smoke and mirrors and I didn't know or do anything that literally anybody in South Africa with a smartphone and at least R100 / $6 / £5 couldn't do.
We can debate if this was a 12 month test or an 18 month test because of the dollar cost averaging approach but allow me to show you the month on month results and you can make your own mind up:
As you can see, by the time 1st January 2020 hit, the investment had already grown to R6,640. but even if you remove that as growth the return was still a massive 32% return and that's understating it in my opinion.
You can clearly see the impact of the first wave of COVID-19 between February and April and then the recovery between May and July. What amazes me though is that with the exception of the 1st November result (which would have been October's performance) if COVID-19 hadn't hit, the Satrix 40 fund would have returned a positive result in 11 months out of 12.
Also don't forget we paid 1% in fees for the convenience of using an app, if we'd have invested directly in the ETF, it would have been just 0.1% and we'd have added another 1% ish to our result.
Also interesting to me is that November (see the 1st December result) delivered a massive 13% return. The only major thing that happened in November was Trump losing the US election so it just shows that an investment in South Africa is still linked to world events. That is because companies in the SA Top 40 include lots of banks, resources and mining companies and tech giants like Naspers who although they might be headquartered in SA, do much of their business elsewhere.
The big takeaways from this experiment for me are two-fold:
Don't Believe The Hype - every day I read about opinions on the markets going up, down, left right, bubbles bursting, record beating days and that the end is nigh - TOTAL RUBBISH, NOBODY KNOWS.
Low Cost Passive Index Investing Works - Even in the darkest of times, and they don't get much darker than right now in South Africa, a decent broad based index tracker with low fees, held for a long time will provide a decent return if you hold it long enough. End of conversation.
The SA Top 40 can't even be classed as a broad index, it's simply the biggest 40 companies on the JSE by market capitalisation (who much they're worth, not how profitable they are) in an emerging market with an economy in serious trouble. As risk goes, it's right up there compared to any of my other investments like the S&P 500 or MSCI World index. 40 is just not a very big number, each company theoretically represents 2% of the value (although it's a bit more complicated than that). At least with the S&P 500 it's spread over 500 companies and the MSCI World has 1,600.
It's unfortunate to say that personally I still wouldn't even consider putting a large amount of our net worth into any of the SA based index trackers and can't see that changing for a looooong time, but never say never. This experiment has definitely challenged some of my pre-conceptions and I guess I get them from reading other people's opinions and social media. Hell, Google decides what news I read these days as I really only see what comes onto my Google news feed (and the BBC app), so I suppose what I do see could easily be biased.
Either way, you can't argue with the facts, and the facts are that my investment in the JSE is showing an annualised return of 40.3% at this moment and that is money in the bank if I sell my ETF today which is simply 2 clicks in the Franc app.
I'm not going to do that though, I like this experiment and I'm going to keep it going. Let's take a look at it again in July 2021 and see where we're at 2 years on from investing the first Rand.
This whole thing has me motivated for more experiments in 2021. I'm going to be getting my thinking cap on over the next few weeks and see what we can kick off in January in the name of F.I.R.E. science.
Tribal Fi was born on Christmas Eve 2019 so it's almost one year old. Incidentally that was also the day I decided to push the button on my new life. For most people, this has been the worst year ever with everything that's happened and all the tragedy caused by the coronavirus. It would be hard with that backdrop to say this has been the best year of my life but it has certainly been one of the most important.
More on that next time, but until then if you still haven't subscribed, the button is at the top of the page and if you have any questions or views on my little experiment, have at it in the comments section below.
Until then, keep living.
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