Many South Africans hold funds in global bank accounts or money market funds for access to liquidity outside South Africa. Although investors may not expect a great return, they believe that global cash is a safe asset. However, that depends on how you measure safety.
Global cash probably provides safety from a political risk perspective. But over the last ten years, it has been the most volatile asset class for South African investors. Many don’t realise that global cash is even more volatile than global equities.
The graph below shows expected returns (in Rand) for each asset class on the vertical axis and the associated risk (measured by the volatility of returns) on the horizontal axis. Global cash has the highest risk, but you are not rewarded for the risk with commensurate returns.
The reason for this is that the Rand is a volatile currency, and foreign currency accounts offer little to no growth (most of the returns come from currency depreciation).
Even conservative investors should therefore evaluate the size of their global cash holdings and consider including global equities in their global portfolios.
Marshall Goldsmith is a two times Thinkers50 Award winner for #1 Leadership Thinker in the World. He is ranked by Forbes as one of the five most respected executive coaches in the world and has written many best-selling books.
I’m currently reading Goldsmith’s “The Earned Life” and noticed an interview with him on The Knowledge Project podcast series. Curious about Goldsmith’s success, I listened to the interview not knowing what to expect.
I often find leadership talks underwhelming or repetitive. This however was thoroughly enjoyable! Goldsmith reflects on his 40-year career with hilarious stories and brutally honest advice. He only coaches the most powerful executives in the world, at eyewatering hourly rates, so this podcast gives all listeners rare access to this gifted man’s experience and advice.
My book recommendation for this month is The World For Sale: Money, Power, and the Traders Who Barter the Earth’s Resources, by Javier Blas & Jack Farchy. This book reads like a page-turning holiday fiction. Yet this story is far from fiction. Blas & Farchy both covered the commodities industry for the Financial Times before moving to Bloomberg News. They have spent years talking to people in the know, and now bring us this superbly researched and well-written book on the secret lives of commodity traders.
I learnt that the world’s commodities are handled by only a few companies, often owned by only a few people. Crucially, the book argues that “the commodity traders’ control over the flow of the world’s strategic resources has also made them powerful political actors”. The book is filled with stories about smart, hard-working and charming characters who all have the same goal in mind: To make money. Sometimes in questionable ways. It’s clear that there are a lot of skeletons in the closet. Some are exposed by the writers of this book, but some I suspect we will never know.
I hope you enjoyed this month’s edition.