Real Estate Investor Magazine South Africa July 2014 | Page 51

OFFSHORE
up this value in less than 24
days!
The balance of 94.5% is all
speculative and investment based
(eg bonds, stocks, commodities,
money markets, currency trading
and property), with a whopping
65.7% (red area) by non-residents
(foreigners). And note how this
sector has grown since the late
1990s, when exchange controls
were initially lifted.
So, now we have a conundrum.
W hile the exchange rate is Critically, as shown in the chart, the trade of goods and services (green
there to facilitate competitive area) make up a miniscule portion of the total trade against the Rand – a
global trade in an economic mere 5.5% of the total turnover.
setting, where price equilibrium
is critical, this accounts for just 5.5% of the Rand’s
Because we tend to act the same way in similar
foreig n cu r renc y t u rnover, whereas f inancia l situations, these moves from one extreme to the other
speculation - something entirely different, where create patterns of mass human emotion which tend to
return on investment matters - is what actually drives repeat themselves, over and over again, in smaller and
the market, accounting for 94.5% of turnover. No larger degrees.
wonder we have seen such massive swings around
fair-value over the past 15 years. And exporters and Impact on offshore investment
importers are being hurt at each extreme.
Understanding this is critical to your investment
d e c i s io n s a n d t i m i n g , b e c a u s e o u r n a t u r a l
W hat is critical to understand is that in this inclination is to revert back to a herd instinct when
investment/speculative-based financial setting, there is we are uncertain, which destines us to the statistical
no rational certainty of the future valuation, and what 80% of people investing offshore and lose money.
therefore pervades this market is unconscious herding
instead of conscious rationalisation.
It is one thing to understand what moves the
Rand, but it is another to understand ourselves and
In times of uncertainty, humans tend to look at how we tend to react in a sphere of uncertainty. It is
what others are doing and follow them – almost like crucial to realise that we need objective, scientifica human herd instinct - taking shelter in the crowd. based information and tools that enable us to make
And as uncertainty of the future increases – ie as educated, informed and rational decisions, instead
the market becomes more volatile - there is an even of irrational, emotionally-charged ones.
stronger tendency to seek safety in numbers. This is
not rational-based thinking, but emotionally-charged
To see the full picture, get a free copy of the
action-taking.
eBook Why the Rand is Critical to Your Investing
Offshore where we expose the hidden element
Sentiment
that can either r uin your investment decision,
And this is precisely what leads to the massive swings in or c at ap u lt it i nto y ou r b e s t d e c i s ion e v e r.
the market, as mass human sentiment moves from one Download yours at www.ForexForecasts.co.za/go/
extreme of emotion to the other, from hope and greed InvestingOffshoreEbook.
to despair and fear - and back again.
www.reimag.co.za

July 2014 SA Real Estate Investor

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