Don't be happy, be worried

It's exactly 43 years ago that I joined the stock market.

I completed articles on 31 January 1972, and, notwithstanding degrees in accounting, I began work the next day, running orders on the trading floor of the Johannesburg Stock Exchange at a time when brokers communicated with foreign correspondents by telex and coded cables, and when computers were used for administrative purposes only. Markets were less transparent than they are today, making misbehaviour less detectable and, with the absence of modern-day technology, less liquid, but, with a larger list of quoted shares and more active private client participation, no less fun.

My presence on the trading floor until it closed in 1996, when it was replaced by a more efficient electronic dealing system, served me well, exposing me daily to street-smart traders whose mental alertness, lightning reflexes and razor-sharp wit helped me develop an innate understanding of the psychology that drives markets.

One legendary trader, who was known to take sizeable wagers on individual stocks, was asked how he managed to sleep at night with so much risk hanging over his head.

An adventurer who believed worry was part of his way of life, he quipped that, on the contrary, he could not fall asleep unless he had a big position.

In all the years looking after clients' savings, I don't think I have ever enjoyed the luxury of going to bed in a state of calm, although, as Max Gunther expounds in his celebrated book, The Zurich Axioms, worrying is not a sickness but a sign of health. If you are not worried about markets, he writes, you are not meaningfully invested.

In the world of money, where movements are shaped by human behaviour, nobody has the vaguest notion of what will happen tomorrow or the next day. So while we all might plan for a prosperous future, we have to be conscious that random events could upset our designs. The fear that things could go wrong disciplines us to constantly evaluate news and, if necessary, prepare appropriate courses of action.

In January, hardly a day passed without some or other news item shocking markets. If it wasn't the Greeks threatening to leave the eurozone, it was a terrorist attack in Paris.

Strangely, these setbacks barely made me lose a wink.

What is causing me to stir at night, though, is the rather cautious position on the South African economy adopted by Reserve Bank Governor Lesetja Kganyago at a briefing after the Monetary Policy Committee meeting last week. The governor expected the advantages of moderating petrol prices to be counterbalanced by the damaging impact of load-shedding and the adverse effects of deteriorating global demand. He slashed his growth projections for 2015 to 2.2% (from 2.5%) and forecast growth of 2.4% (from 2.9%) in 2016; levels far too low to celebrate.

It's a realistic concern. While tumbling oil prices will reduce inflation and revive consumer and business activity, the concomitant collapse in commodity prices will diminish tax collections from mining companies, and a cutback in mining projects (because of uneconomical returns) will hit the construction, engineering and equipment industries.

Veterans like myself have seen this all before. I began working in the aftermath of the 1969 crash.

In 1985, PW Botha's stubbornness thumped the rand, and in October 1987 stock indices fell 20% in a single session.

The heavy declines in share prices in 2001 and 2009 are still influencing investors' mindsets. Yet, we're still surviving by acting smartly and adapting clients' holdings to the changed risks.

As Gunther counsels: we can remain out of the market and stay tranquil, calm and poor. Or we can remain in the stock market, worrying at night, but giving ourselves the only chance of rising above the great unrich.