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“Never lose money”. That’s Warren Buffett’s first rule of investing. His second rule is “don’t forget rule number one”. 

Of course, even the Oracle of Omaha has suffered losses over his long and hugely successful investing career, but his rule is more about your approach than the results. What he means by “never losing money” is that we should look to preserve capital by allocating it to investments wisely. 

There is no one-size-fits-all approach to investing as everyone has different priorities, experience levels, and assets, so what may be wise for one person, may not be for another. 

One of the biggest questions that investors must ask themselves is whether they want to gain exposure to international markets or focus their attention on the domestic market. 

The answer may vary from nation to nation, but if you’re in South Africa, here are the things you might want to consider when arriving at your decision. 

The Conditions at Home

South Africa has been very kind to investors in recent decades. Since 1996, the value of its blue-chip stock index, the JTOPI South Africa Top 40, grew by a whopping 15,500%. For context, that means if you’d put R10,000 into an index-tracking fund or ETF back in 1996, you would be a rand millionaire today. 

In comparison, the United States’ leading index, the S&P 500 grew by 670% over the same period while the UK’s FTSE 100 has only doubled. 

In the world of investing, it is important to remember that past performance is not a guarantee of future success. Common sense would also suggest that we should expect the same levels of explosive growth to take place in the next 25 years. However, there’s clearly a lot of wind in the sails of South Africa’s biggest publicly traded corporations. 

A Hedge Against Currency Risk

Unfortunately, different currencies make things a little more complicated. Fluctuations in exchange rates will affect your buying power, even if your investment returns have been strong. 

Back in 1996, $1 would cost R4.61. However, as of October 2021, a dollar is worth around R14.59, a 216% strengthening of the US currency. Looking at the example R10,000 invested in the JTOPI 40, it would not actually be 15,500% bigger when comparing against the dollar. 

R10,000 in 1996 was worth $2,169. Today, R1,550,000 is worth $106,237 which is 4,898% larger. 

However, if you’d exchanged your rand for dollars in 1996 and put it into the S&P 500, it would be worth around R200,000 today (1,900% larger). 

In this case, investing domestically still delivered better returns, but there are many other countries where this hasn’t been the case. There’s also no telling what the future has in store, so hedging may still be a prudent decision in your quest to “never lose money”. 

Getting Exposure to Strong Sectors

While the UK’s FTSE 100 may have “only” grown by about 100% since 1996, some of its individual sectors have outperformed this by a long way. One of these is the iGaming industry, which even didn’t really exist 25 years ago. 

It was still in its infancy, with startup companies developing the necessary technologies to allow their customers to play and wager on traditional casino games through their computers. Today, some of these companies have floated and grown into globally recognized brands that develop their own exclusive titles like The Bird House, 3 Witches, and Diamond Stars as a way to stand out from the crowd. 

Fast forward to 2021 and the industry has grown exponentially, with billions wagered over the internet just in the UK each year. Many iGaming companies are now worth billions themselves and analysts forecast they will continue to grow thanks to the opening up of markets like the US. 

Other examples of strong sectors include US tech, German manufacturing, and Indian BPO. To gain exposure to any of these, South African investors would have to look outside of their borders. 

A Good Idea?

There is no definitive answer as to whether an investor should look to invest abroad. Everyone’s personal circumstances are very different, so it is always a good idea to get financial advice tailored to you. 

That said, there are definitely strong cases for investors getting some exposure to international markets, even if that means foregoing some of the high returns on offer at home. Of course, before making any investment, you should research thoroughly and get outside help if you’re unsure, because, after all, your aim as an investor is to never lose money.