The only constants of financial markets

Many of my life’s lessons were learnt as a young boy growing up in Greenside. I was one of four brothers, who, seven days a week, would kick, throw or hit balls of various shapes and sizes on a small patch of lawn in our front garden.

In playing these games with my siblings and other boys in the neighbourhood I mastered controlling a football in a confined space, playing an on-drive, and serving topspin, skills that would serve me well as an adolescent competing for a place in a school team.

It wasn’t only in sports that playing games advanced my education. Monopoly taught me that when you were short of cash you could mortgage those little green plastic houses. And rolling the dice and catching the big snaky, two squares from the finish, would always be a reminder in later life that stock markets don’t only go up.

Nearly three years ago, I created The Cristal Challenge, a fun contest to attract investors to the charm of selecting individual stocks as part of a securities portfolio, but also to expose the inexperienced to the vagaries and vicissitudes of financial markets. Each year competitors are asked to choose five JSElisted companies on an equal weighted basis. Their selection is judged on total return capital gains or losses plus dividends over 11 months, from January 1 to November 30.

Many see competitions such as this as frivolous exercises with no merit in the real world of fund management. But for me it is a game of discovery, where newcomers to the market could look back over the year and analyse what they did right and where they went wrong.

The contest in 2023 attracted 203 entries from professional managers to young amateurs, who chose altogether 179 counters. At the time of writing, the total return on the JSE all share index was up a meagre 2.1%, yet only 60 participants had managed to outperform the benchmark. One of the biggest mistakes of entrants was to chase the previous year’s winning counters. If you held Thungela in 2022, its 360% rise would have assured you a top 5 place. Not this time. The sharp dip in the coal price dragged the coal miner down 29%. Similar hot stocks, Purple (-49%) and Renergen (23%), failed to match their previous stellar performances.

Resource shares always attract widespread interest. We don’t call them thrombosis stocks for nothing. At the end of April, the gold and platinum bulls were running away with the contest. True to form, the crack came, relegating them to “alsorans”. Golds have held onto some gains, but platinum counters crashed on falling PGM prices, with Amplats plunging 49%, Sibanye down 28%, and Northam off 37%.

Although Transaction Capital had fallen from its peak of R52 a share in May 2022 to R34 at the start of the challenge, many contenders were confident the business would recover its former glory rather than end up where it presently sits, down a punishing 84% on catastrophic operating numbers a performance only a smidgen better than those who believed beleaguered Steinhoff (-94%) would be spared the shame of liquidation.

While so many entrants look back and scratch their heads at their poor choices, who would have thought that the present leaders could possibly win with a selection of dull and dreary stalwarts such as Sanlam, Standard Bank, Santam and Shaftesbury? Now, that’s a valuable lesson to learn.