Perspectives

Human memory seems short, doesn’t it? During a relatively brief career, I have experienced three major market corrections – obviously all for different reasons. Someone once said that happy families are all alike, but every unhappy family is unhappy in its own way – markets are the opposite! Markets are “happy” for different reasons. Shortly after the Dotcom crash during early 2000, I read this headline “From IPO to REPO” (from initial public offerings on the Nasdaq to assets being repossessed). The excesses of the technology boom stuck with me. Read more >>
Friedrich Wilhelm Nietzsche, a German philosopher and cultural critic, once said: “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule”. By the way, he is also credited for: “That which does not kill us, makes us stronger”. How appropriate during the times we live in! No matter whether you are a follower (or critic) of Biden, Malema or Bitcoin, some level of insanity seems to prevail... Read more >>
The word “consensus” tends to have powerful positive connotations. Consensus suggests clarity, agreement, harmony and perhaps team spirit – a blissful condition of unity. However, when mixed with decision-making within a family trust, certain situations where trustees earn a fee, all these positive perceptions may evaporate faster than the alcohol from your CV-19 sanitiser. In other words, the legal and contractual nature of trust deeds have the potential for unwanted outcomes. Read more >>
In a previous letter to clients we shared some thoughts on FOMO – that is the FEAR OF MISSING OUT. The last 3 months have had some odd financial outcomes; surprises to say the least. The old saying seems to hold true: “It is time in the market and not market timing that counts”. Some trendy choices, commodities such as Gold (Silver don’t even get a mention), perhaps a share price of Tesla that tripled, or the broad US technology sector which went on the run, could easily make us experience FOMO.  Does that urge us to get in on the action? Read more >>
“Investing is half as technically complex as taught, but twice as emotionally difficult as it is assumed.” – Morgan Housel. Of course, oversimplification could also be dangerous. Therefore simplicity does not imply that it is easy. However, when it comes to long-term investing, simple ideas and processes often triumphs over more complicated and expensive alternatives. In essence the investors’ objective should be an after-tax real return (through various cycles); i.e. a return above inflation to preserve the purchasing power over time. We achieve this via portfolios that consist of a combination of shares in companies or businesses and bonds (loan offerings, or contracts issued by governments are considered less risky) and perhaps other asset classes, for example, listed property. Read more >>
Some South Africans prefer the property market (direct investment in property and not listed) instead of financial investments on the stock market. You often hear that investors like to “see and touch” their investment. Individuals in this camp tend to feel there is a high degree of control over rental income and expenditure. In the past there has been a rapid increase in capital value; hence, the “good experience” of South Africans, especially during high inflation years.  During those years, rental income more than kept pace with broad inflation while interest rates have fallen significantly since 1998. Read more >>
Iconic investor Warren Buffett does not attribute their success over the years to mere intelligence. In fact, it’s more about avoiding mistakes, they say. Charlie Munger, his long-time business partner, once said: “It is remarkable how much advantage we have gotten by trying to be consistently not stupid, instead of trying to be very intelligent”. This statement may seem obvious, but in the investment world if you ask anyone whether they’re being stupid, they’ll likely say they aren’t and never have been. Unfortunately we don’t always realise when we are making a mistake. When it comes to financial planning and investing, they might think they are smart, but in many cases they are not well informed. Read more >>
South African (ZA) investors often claim that they don’t need exposure to direct foreign securities, because an investment on the JSE (Johannesburg Securities Exchange) provides a sufficient Rand hedge. Perceived wisdom is that foreign revenues of these large companies protect their shareholders from South African Rand (ZAR) devaluation. We find it rather alarming that this notion is not interrogated more thoroughly. This could be a combination of implicitly trusting an advisor and/ or the unfamiliarity with the subject matter. This article aims to unpack this idea. An investor needs to distinguish between revenue and earnings. Companies do not distribute revenue as dividends to its shareholders – only after tax earnings. A company with foreign revenue might also have underlying expenses or costs in the foreign currency. Thus, only if a company has a foreign currency profit, can it potentially qualify as a so-called “Rand hedge”. About 60% of the JSE Top 40 earnings (the 40 largest companies on the exchange) come from foreign currency. It does provide some Rand protection, but it is concentrated around certain industries and geographies. Read more >>
In layman’s terms, investors do what they do, because they want to end up with more money. How one would specifically define that objective, depends on each investor – not all of whom are rational.  The best definition of successful long-term investing is probably increasing wealth in real terms, i.e. a return higher than inflation, which leaves the investor with an increase in purchasing power. Furthermore, when acquiring an asset, the key driver of its value is its potential to distribute cash flows (dividends, interest or rental distributions and proceeds on sale) to the owner. Read more >>
During difficult times we often seek someone to talk to, bounce a few ideas or to gain perspective (personally as well as financially). How we go about this, obviously vary with the person and personality. Who we turn to is important.  When it gets to our health, most people would prefer a GP or specialist, i.e. someone who has the experience and shown competency in that area.  However, when it gets to financial matters, we often experience that people do not distinguish between opinions versus proper and appropriate advice. Unfortunately people get swept away by fads and are often lured by promising returns that are unsustainable (e.g. Bitcoin and other questionable investment schemes).   Read more >>
Some of you may be familiar with the Greek myth of Odysseus. Below is a classic painting by John William Waterhouse of Odysseus and his men.  After victory in Troy, Odysseus sets off on his journey home (the Trojan horse was his idea). Odysseus was renowned for his brilliance, versatility, self-restraint and cunningness. On the way to Ithaca, they had to pass the island of the Sirens before facing the six-headed monster Scylla and the whirlpool Charybdis. The Sirens were bird-like creatures with female voices that lured sailors to their death. Odysseus plugged his men’s ears with beeswax and had them bind him to the mast of the ship – unable to do anything to their detriment. He alone heard their song flowing forth from the island, promising to reveal the future… Read more >>
It is not easy to provide a perspective when we have been saying the same thing the last several months. Nothing has really changed and everyone remains worried about their savings and the political rhetoric. This is perhaps why the seasoned investors keep on referring to temperance. It is our ability to manage our behaviour when things do seem odd and out of control, while ignoring the alluring schemes such as a Bitcoin, a Sharemax, switching to cash, or whatever comes next.  I thought it appropriate to share a few thoughts by Jason Zweig.  He is a reputable columnist at the Wall Street Journal in the USA and offer remarkable insight and perspective. I have adapted an article of 5 years ago (28 June 2013) titled “Saving Investors from Themselves” and trust you will appreciate the commentary. The image I borrowed from Carl Richards at “The Behavior Gap”. Read more >>
The use of screening tests in medicine is a well-established practice.  Depending on your age and gender, most of us have undergone some form of screening in the past. Examples of medical screening tests are a glucose test, cholesterol test or a mammogram. The goal of a screening test is to detect a potential health disorder or disease where there might not necessarily be any symptoms. Included are perhaps some screening questions that might help you assess whether you have an underlying “financial health” concern. If you have answered “NO” to any of these questions, it could indicate that there is an opportunity to improve your financial wellbeing. Read more >>
When all goes well, we often forget how good we have it, or what a scenario might look like if something goes “off the rails”. It is classic comfort and complacency. This week a substation blew in Paarl and started a fire that left a large section of our town without power for 3 days. This on top of our water crisis in the Western Cape!  Good planning is in essence trying to mitigate risks associated with something catastrophic (not necessarily with a certain outcome) or something with a material impact on our well-being, physically or financially speaking – obviously all unforeseen circumstances. We need to assess the known as well as the potential unknowns and plan accordingly. Easier said than done.   Read more >>
For some reason greed and power is part of humanity. Not long ago I read about the bankruptcies of both Boris Becker and Johnny Depp (not even to mention Naas Botha). It makes you wonder what we need, or how much we need? Read more >>

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