Weathering the storm: Marriott’s six Investment tips for 2016

FEBRUARY 8, 2016

The global investment landscape is in the midst of considerable change, and this has been reflected by unusually volatile markets. Not only have interest rates begun rising in the US for the first time in almost a decade but China’s economic growth is faltering as it transitions from a production to a consumption driven economy. 

Not surprisingly, many South African investors are uncertain about where to invest. Instead of worrying about economic variables which are out of your control, Marriott believes that following the below investment principles will stand you in good stead for the years ahead.

  1. Invest for income and let the capital take care of itself. The value of a business is based on the income or earnings it can generate. Only through increasing its income can the value of a business increase, a maxim well known by those running their own businesses. Over the long term, this principle holds true for investments. Following this philosophy, Marriott only invests in securities that provide reliable and growing income streams regardless of global slowdowns, exchange rate volatility and varying interest rates.
  1. Offshore, offshore, offshore. With dividend yields of some of the largest companies in the world trading on attractive dividend yields, equity valuations in first world markets are presenting investors with a good opportunity to generate inflation beating returns over the next five years. Multinational companies, such as Coca-Cola, Colgate-Palmolive, Kellogg’s and Nestlé, have consistently produced reliable and growing income, which in turn has led to capital growth. Although listed on first world stock exchanges, these businesses transcend geographic boundaries, and will benefit from the anticipated emerging market consumption boom in the years ahead.
  1. Equity exposure (especially offshore) is key.  Equities are attractively priced relative to bonds and cash in first world markets.  Very low interest rates mean investors can currently receive more income from equities than government bonds and money in the bank. This is a very rare occurrence as equities, unlike bonds, also provide investors with income growth which ultimately translates into capital growth.
  1. Know what you are investing in. When investing, try to understand in which asset classes and in what businesses your money is actually being invested. Don’t speculate with your life savings. Speculating invariably involves buying and selling investments based on very little fundamental knowledge and typically produces enormous anxiety and poor results in practice. Rather buy and hold companies that form an integral part of the day-to-day lives of consumers, and will continue to grow their dividends regardless of economic conditions.
  1. Don’t pay too much for an income stream. Avoid any investment where the dividend yield is well below the historic average.  Paying too much for an income stream will likely result in poor returns over the longer term.
  1. Remember, above all investing is ultimately all about income. Capital growth may receive a great deal of investor attention; however, investing should ultimately be focused on building an income stream to fund a lifestyle. Don’t worry about economic variables which are out of your control. It is difficult to predict interest rates, the future direction of the exchange rate, or the stock market. Rather concentrate on what is actually happening to the businesses in which you are invested and monitor the income produced by these investments.

Article submitted by Duggan Matthews, Investment Professional, Marriott Asset Management. Caption: Duggan Matthews is an Investment Professional at Marriott Asset Management.