John-Morgan Bezuidenhout – Portfolio Manager, Momentum Investments
Everyone looks like a genius when markets are going up. That is one of investing’s oldest tricks. A rising market can make ordinary risk-taking look like deep insight. The portfolio goes up, the spreadsheet looks heroic, and suddenly everyone has a “disciplined investment process”. Sometimes they do. Often, they were just standing close to the fire.
Investing is a bit like a braai. Anyone can arrive with meat and confidence. That is the easy part. The skill is knowing how much to put on the fire, when to turn it, when to wait, and when to stop someone from adding more wood because “it looks like it needs heat”. Investment portfolios work the same way. Most investors spend too much time asking: “What is the best investment?” The better question is: “Best for what?”. Best for growth? Best for income? Best for protecting capital? Best for beating inflation? That is where outcome-based investing starts.
At Momentum Investments, the philosophy is built around a simple but important shift: start with the client’s goal, not the market’s latest excitement. The question is not only whether an investment can perform. The question is whether the portfolio is designed around the client’s objective, time horizon, return requirement and ability to take risk.
The investment industry often behaves as if the goal is to win a quarterly beauty pageant. Who is top of the performance table? Who had the best year? Who owns the thing everyone now wishes they had owned earlier? But clients do not retire on relative performance tables. They do not pay school fees with peer rankings. They do not fund liabilities with impressive cocktail-party stories about last year’s best asset class. They need portfolios that can help them reach real outcomes. That is why asset allocation matters.
Asset allocation sounds boring because, frankly, it has terrible public relations. But boring is not the same as unimportant. Brakes are boring too, until you are driving downhill. Portfolio construction is about choosing the right balance between offence and defence. Ownership assets, such as equities, property and private businesses, usually offer more upside but more uncertainty. Debt assets, such as bonds and credit, usually offer more contractual returns, less upside and more stability. The art is not choosing one forever. The art is choosing the right balance for the investor, the objective and the environment.
In braai terms: not everything on the fire needs to be wors. Wors is wonderful, but a plate made only of wors is not a strategy. It is a warning sign. Equities are often the chops and wors of a portfolio. They get the attention. They bring the growth. When they perform well, everyone suddenly has strong views about valuation, earnings and why they “saw it coming”. Bonds and credit are more like pap and bread. Less glamorous, but they hold the plate together. They provide income, structure and a more predictable return profile, especially when yields are attractive. Cash is the cooler box. Nobody brags about it when everything is going well. But when the fire dies, the weather turns, or opportunities appear, flexibility suddenly looks very intelligent. Alternatives are the marinades and side dishes. Used well, they add flavour. Used badly, they become expensive mushrooms with a pitch deck. The point is simple: every asset must have a job.
This is also why Momentum’s outcome-based approach is built around a multi-asset-class, multi-strategy and multi-mandate framework. That is a technical way of saying the portfolio should not depend on one asset class, one investment style, one market or one heroic forecast. Different assets and strategies should work together toward the client’s required outcome. Investors often confuse performance with skill, especially in bull markets. If you outperform when markets are rising because you simply owned more risky assets, and then fall harder when markets turn, that is not necessarily sophistication.
It may just be beta wearing a nice suit. True sophistication is not about looking clever when conditions are easy. It is about knowing what risks you are taking, why you are taking them, and whether those risks are appropriate for the outcome you are trying to achieve. Risk should be intentional and compensated. None of this means investors should constantly fiddle. That is not asset allocation. That is panic with admin – good asset allocation starts with purpose. What is the money meant to do? When is it needed? What return is required? How much volatility can the investor tolerate? What happens if markets fall? What happens if they do not? What behaviour might the investor display when the fire gets hot?
Momentum’s outcome-based philosophy explicitly recognises that human behaviour can destroy investor value over time. Investors panic, chase winners, abandon strategies and often make emotional decisions at exactly the wrong moment. Keeping clients invested is therefore not a soft idea. It is central to the investment outcome. The goal is not to build a portfolio that wins every month. That portfolio does not exist, except in pitch books and other works of fiction.
The goal is to build a portfolio that has enough offence to grow and enough defence to survive. It should have conviction, but not arrogance. Diversification, but not confusion. Flexibility, but not constant fiddling. An investment portfolio should be positioned for opportunity, but not dependent on one outcome. It should be built for probabilities, not prophecies. And above all, it should be built around the investor’s actual goal.
At a braai, more meat is not always a better meal. In investing, more risk is not always a better portfolio and standing close to the fire is not the same as knowing how to cook.
