Perspectives

No one could have thought that global financial markets would deliver such returns over the previous 12 months. Time and again economists and pundits claimed severe uncertainty coupled with more speculation. This injected fear with the layman investor. What are our conclusions?  We don’t know what is going to happen; we can only manage uncertainty to some degree.  Plus, we don’t need to worry too much about the daily news flow.  It is for the most part utter noise.   Once again, being part of the market (through its various cycles), has proved to be a better strategy than trying to time it; i.e. waiting for the perfect exit or entry point.  Those individuals, who “read” too much into the financial markets, were eventually caught on the sideline while the JSE All Share Index slowly crept up, well above its historical highs since the 2008/2009 financial crisis with a roughly 20% return per annum.   Read more >>
From time to time I follow commentary by Carl Richards of The Behavior Gap.  He regularly questions conventional wisdom and has some insightful and very practical comments to the layman investor.   I took some thoughts from a recent letter which discussed our human bias towards taking action; i.e. we need to continually do something in order for something else to work.  He discovered a study that explored the success, or hit rate of elite soccer goalkeepers during a penalty shoot out.  The results were astounding.  You can download the study which was also published in the Journal of Economic Psychology here.  The notion was simple; that if goalkeepers just stood there and do nothing, they would be much better off. Read more >>
This month I thought to explore some notions around the relationship with money and what defines our contentment.  Remarks by someone reminded me of what the Internet connected society might experience; and perhaps we are oblivious to it all. Humans are good at relating to others and measuring up to their peers.  We tend to measure ourselves – often in financial terms, where we live, or by ranking each other with job titles and income. Nowadays, people also rank their experiences.  Somewhere, right this very moment someone is having more fun than you; and making more money than you. Doing something more important, with better friends and with a happier ending than you (and letting you know via Facebook or Twitter). The fact is, you are not part of it. Read more >>
The amount of information we have access to via the Internet is truly astounding.  With numerous investment opinions, newspapers, magazine articles and lots of other analyst reports; does all this information equal knowledge?  Do you believe that in order to generate handsome returns, you need to know more than everybody else? Read more >>
Simon Sinek studied exceptional businesses and leadership which lead him to develop “The Golden Circle of Truth”. What struck me about his concept was the utter simplicity and that the deeper motivation of human actions are typically locked up in “why” questions.  Take note of how many times children ask why questions… why this and that, while adults have somehow managed to build up so many layers of assumptions about certain things.  For example we will ask someone what he or she does (implying his or her profession), but not why they do it?  Knowing that less than 10% of all working adults enjoy what they are doing, it is well possible that someone is not passionate about their job and just plugging away to pay the bills. Read more >>
Our search for simplicity is not easy.  We are reminded of our physician’s recommendation to a particular symptom… stop smoking, eat healthy, or get ample rest and exercise – so basic and simple, but often so difficult to implement. People expect something complex or grandiose. Maybe a new type of medication, treatment or surgery; ie a quick fix to my problem.  Is it our human nature to complicate matters?  Or are we impressed by jargon (we know so little and they so much)?  Why this contradiction? It seems we resist these recommendations because it often requires us to change our cognitive patterns and behaviour. Read more >>
South Africans generally tend to be negative – and for good reason. Our perception might be that circumstances are much better abroad.  So what is the reality?  We have major unrest in Europe; especially Greece could destabilize the region.  Greece has a defunct government with no proper tax collection.  With unemployment figures of roughly 27% in both Greece and Spain, what are the prospects for these Mediterranean governments?  The US stock market returned roughly 2.1% per annum in dollar terms over the last 12 years (measured by the “Dow”; the 30 largest companies in the US).  On the contrary our markets have flourished since 2000 (even in dollar terms over the same period).  Apart from its high debt levels, America has many other problems from crime to immigration.  Further, corruption amongst government officials in Russia and China is some of the highest in the world.  Japan had negative economic growth for more than 30 years (the Nikkei dropped about 50% over the last 12 years) and is stuck with a severe demographic problem.  There are too many old people!  Recently international banks reinstituted debt claims against the Argentine government, which was responsible for a complete default and economic collapse between 1999 and 2002.  We had Malema and now it is Nklandla & Co.  There is certainly trouble abroad but we are not alone. Read more >>
I recently reviewed surveys that researched the average time budget; essentially, what do we do with our time?  We sleep roughly 7 to 8 hours a day – that is a 1/3 of 24 hours.  The other 1/3 or more we spend at work, which leaves us with very little time for family and leisure activities during the week.  Consequently over a weekend we indulge in our hobbies, family and friends, entertainment, sport, shopping etc. (all those activities that will make us “happy”).  It seems as if our consumer lifestyle has robbed us of personal time and our budget. So how much time do we actually set aside to think, or plan our life?  From the surveys it is apparent that when it comes to personal finances, very little time is spent on weighing alternatives and costs.  Even leading up to retirement this process of continual planning and review has been neglected and often left until too late.  Think about the last time you made a significant purchase such as a home, vehicle or appliance.  What research went into that purchase to determine the perceived “optimal” outcome?  Or, was it purely an emotional decision without much thought?  With finances there seems to be many important criteria such as trust, confidentiality, credibility etc., but how do we make financial decisions and do we spend enough time planning?  Could we be financially independent with a series of random decisions? Read more >>
Our world is made up of many tiny parts that are useful only when we combine them.  Mankind’s achievements – from your computer to countless financial transactions, property developments, medical procedures to flight navigation systems – all result from joining people and things to each other.  With knowledge, western capitalism explored different economic combinations in order to create our wealth.  As a modern society we have been able to organise knowledge… essentially “ownership memory systems” of capital such as who owns what and where with other attributes associated to tangible (land, buildings, machines) or intangible assets (stocks, patents, promissory notes etc).  As with cells in your body, the logic behind asset documentation is the DNA of capitalism. Read more >>
Much has been written about SRI which is commonly referred to ‘ethical investing’ with related concepts such as ‘green investing’, ‘values-based investing’, or ‘sustainability investing’.   With the introduction of the Code for Responsible Investing in South Africa (CRISA), South Africa became only the second country after the United Kingdom to formally encourage institutional investors to integrate environmental, social and governance (ESG) issues into an investment process. Empirical evidence showed that socially responsible investing (SRI) in developed economies is gradually moving from a rarity to a mainstream consideration.  Such “filters” are often shaped by economic prosperity, hence the Dutch expression “Eerst het brood, dan de moraal” (first bread, then morals). In contrast to the first world, South Africa is more likely to focus on job creation and infrastructure development.   Read more >>
Legislation within the local financial industry has come a long way since 2001 when the first law governing financial advice (the Financial Advisory and Intermediary Services Act) in South Africa came into effect.  Considering there were little to no governance of what constitutes appropriate advice; since 2001 many changes have taken place to protect consumers.  Recently the government announced that it intends to amend 11 Acts governing the financial sector.  In this issue (although a boring topic) we thought it would be useful to provide a few highlights. Financial regulation will be broadly divided between the Reserve Bank of South Africa (RBSA) and the FSB (Financial Services Board).  The mandate of the FSB has its roots in the FSA (Financial Services Agency) – the British equivalent of our local regulator.  The RBSA will be responsible for prudential regulation; ie legislation to prevent institutions from going bankrupt.  On the other hand the FSB will be tasked to regulate market conduct and consumer protection.   Read more >>
There exists a perception that owning property is less risky than owning shares of a publicly traded company.  This is not necessarily true.  There is not an easy answer when one determines the risk profile of a particular asset.  In this issue we would like to elaborate on some of the misconceptions that lead to branding oneself as a “conservative” or “aggressive” investor.  People tend to misunderstand the relationship between underlying risk and the return of an investment.  After all, what are all the risk components of an investment; i.e. currency risk, volatility, inflation risk, institutional risk, etc?  And, what elements drive our total return? Read more >>
With the end of 2011 in sight most investors wish that 2012 will hold in something better. To say the least, total return figures (including dividends) of the JSE ALSI over the last 12 months were dismal.  One must remember that although the market turmoil creates fear amongst investors, it is a sign of change; and change brings about new opportunities and potential economic growth. A visible example is climate change – the direct result of irresponsible environmental policies. Read more >>
Are the international markets going anywhere? Will the local market go somewhere? Unfortunately nobody knows what the future holds. More appropriately the Spanish say “in a future” (en un futuro) opposed to the English which say “in the future” – just semantic trivia and maybe not the right way of expressing oneself. Read more >>
Seek facts not opinions... An independent thinker and student of the financial markets said: “Seek the facts and not opinions”. It is not surprising that Dave Foord has one of the longest and most successful investment track records in South Africa.  In our previous newsletter we tried to highlight several biases as well as our human tendency to inevitably make poor decisions when our emotions take over (see the insert). Fear is equally destructive as greed... Read more >>

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