Tag Archives: investing

Marcus Jooste’s school-boy error

Much has been written and much will still be written about the Steinhoff saga but after listening to some of the testimony and reading the bit below…there is only one conclusion that can be made and that is this: Ethics aside, Marcus Jooste’s biggest mistake was failure to diversify. It’s a classic school-boy error of over-confidence. We have seen it before with the collapse of Lehman Brothers where employees had their entire life savings invested in just one share and we will see it again in the future.

If there is a financial planning lesson here it is this: diversification is essential to a successful long-term investment strategy. Even if you are the CEO of a huge company you should not have all your money invested in just your company share. You need to diversify and this means holding a wide-range of different asset classes and currencies. Failure to diversify will ultimately result in failure to accumulate wealth!

“Jooste family trust held R3bn in Steinhoff shares on day of fallout

On the day of the Steinhoff share price fallout, Jooste’s family trust which has an investment company Mayfair, lost R3bn. The company held 68 million Steinhoff shares.”

 

It’s time to do the Mickey Blue (again)

I recently watched someone using a leaf blower to clear their pavement. As I watched, it struck me what a pointless exercise it was and it crossed my mind that the leaf blower must be one of the most senseless machines yet invented. Continue reading It’s time to do the Mickey Blue (again)

The watched pot…

There’s an old saying about the watched pot never boiling, which simply means that if you wait anxiously for something to happen, it seems like it takes forever. Continue reading The watched pot…

The ultimate savings & investment vehicle!

Today I got a call from a journalist asking a few questions about what a beginner investor should do if they want to start investing. I think that they were looking for “tips and tricks” about which funds or shares to choose. Here was my reply.  Continue reading The ultimate savings & investment vehicle!

One page financial plan

I have just finished reading this excellent book by Carl Richards…

The One-page Financial Plan – some notes from the book:

“The best financial plan has nothing to do with what the markets are doing, nothing to do with what your real estate agent is telling you, nothing to do with the hot stock your brother-in-law told you about. It has everything to do with what’s most important to you.” p7

• know why you are planning
• time spent + money spent = what you really value.
• it’s about making best guesses (and not obsessing about getting things exactly right) – a lot can happen between now and the future!
• It’s about giving yourself more time!
• Things you have to invest: money, time, energy and skills – all NB to consider
• Most people don’t have a clear understanding of their current financial situation. Budgeting = awareness
• budgeting & flossing: both insanely important, super simple, & for many of us, nonstarters
• save as much as you can
• spend less than you earn
• don’t lose money
• life insurance plays 1 role: it covers economic loss. It is an expense, not an investment…it’s about the risks you are ok with and the risks you’d like someone else to take care of. Economic need, not emotional loss.
• Paying off debt = investment with guaranteed return
• Speculation and intuition are not investment strategies
• Invest and then behave for a really long time

Rational or what?

It may be mid-Winter and it may be cold but there is a lot of heat being generated by all the media coverage the Malema is currently getting. Not sure whose agenda it is serving but someone is surely behind it all. In the light of this, there was an excellent interview with Professor Steven Friedman on 567 Cape Talk last night:

“Professor Steven Friedman says while much of the public debate portrays Julius Malema as an immensely powerful figure, all the evidence suggests that he largely does what he is told by senior politicians – and, perhaps, business people in the ANC who may also help him to afford his lifestyle. “Whether Zuma is challenged for the ANC presidency next year will be decided by senior figures who will convey their decision to the league.” Friedman says this may be the most over-cooked story in South African history, and it’s not analysis or commentary it’s hysteria on the part of journalists and political analysts.”

And just before you sound off about him being naive or that he has blinkers on, pause for a second to consider just how emotional and irrational our behaviour as humans often is.

“Did you know that in the aftermath of the Japanese earthquake and subsequent tsunami in March of this year, another event passed largely unnoticed in the western world. It was a mania of epic proportions, yet only lasted a week or two. The Chinese public, in the mistaken belief that eating iodised salt would help to prevent radiation sickness, bought up large quantities of such salt. This together with speculative entrepreneurs buying tons of salt, drove the price up by at least 900% within a matter of days. It took repeated statements from authorities before calm was restored, despite the fact that Beijing is almost 3000km away from the Fukushima nuclear accident. But at the height of the mania, the public even took to buying stocks of soy sauce as a salt replacement.”

Thanks to Atlantic Asset Management for the bit above about the Salt Bubble of 2011

You can still get 8%

But not for long…

If you are looking for income from your cash then the RSA Retail Bond (2 year fixed-rate option) is still offering 8% – that’s about the best “guaranteed” option available. But that rate is likely to fall by about 0.5% at the beginning of December (the repo rate was cut by 0.5% to 5.5% last week).

To qualify for the 8% rate you need to have invested the money with them before the end of November, so you still have about 1 week to go.

On an amount of R500000, the difference between 8% and 7.5% is about R208 per month…that’s about 13 cappuccinos or about 26 litres of petrol…worth getting a move on in my opinion.

I don’t think I would go for the 3 year option at this stage…it is quite a long time and rates are likely to start increasing again sometime in the not too distant future. With the 2 year option, you at least have the option to increase (re-start) your bond after 1 year…so if rates have increased in the next year you can participate in that increase. I guess the only risk with the 2 year option is that rates fall a bit more in the next 2 years and are still lower by the time you need to re-invest your bond but looking at all the yield curves this looks highly unlikely.

Thanks to Atlantic Asset Management for the help on forward rates.

Credit card rewards…

Got an email from friend this week which went something like this…”Just got a mail from Nedbank to say I have 300 000 odd ‘Greenbacks’, their loyalty programme. I can exchange them for until trust investments. Wanted to know your opinion?  I’ll have to put R5000 cash to open an account but can get around R11 000 or so more through the Greenbacks I got sitting in an account.”

What a great idea…I knew you could get shopping vouchers but had no idea you could get unit trusts as well, so I did a bit of research.

It turns out that through the “Greenbacks” scheme you can in fact exchange the rewards for unit trusts. The question is, would I rather have unit trusts or vouchers for Cavendish Square? And this is where Nedbank have been “clever”.

If you convert the Greenbacks to shopping vouchers you will get R100 for each 3500 Greenbacks – so for my friend, this would mean about R8500 worth of vouchers (a lot of retail therapy indeed). If, however, you invest in their unit trusts they will give you R100 for each 2800 Greenbacks – so he would get about R10700 which could be invested. He would be better off by R2200 by investing in the unit trusts – and it will be done at no initial fees – so it becomes very attractive indeed.

So would I do it? Absolutely! If I had Greenbacks “lying around” that I had accumulated through using my credit card with no “need” for vouchers then I think that this is a very attractive option indeed.

Taken from their website… Invest in unit trusts.

2 800 Greenbacks = R100 contribution

Invest in a Nedbank unit trust of your choice and pay 0% initial fee on your invested amount (save up to 5%)

  • Minimum contribution of R5 000 to open a new unit trust account.
  • Contribute in multiples of R100 (2 800 Greenbacks).
  • A minimum of 140,000 Greenbacks points is required to invest in unit trusts.

And I guess if he really needed the cash, he could put the money into the Money market fund and redeem it shortly thereafter (but I am sure that is against the spirit of this and that there could well be some fine print somewhere to limit this).

Do the Mickey Blue Eyes…

I enjoy using lines from movies when talking to clients about investing and financial planning. For example there is the classic line by Jack Nicolson’s character from “A few good men” when he is on the witness stand and being asked about the truth of an investigation to which he replies…”You want the truth? You cant handle the truth”. Sadly we get to use this when telling clients the truth about being able to retire or about their budgetting and the reasons that they are always in debt.

But one of my favourite lines that we often get to use is from the movie “Mickey Blue Eyes” which stars Hugh Grant as the boyfriend whose prospective father-in-law is a gangster boss. Hugh Grant’s character is very proper and speaks with a real hot potato in his mouth. The father wants to introduce him to his gangster friends but cant have him speak with that accent and so he tries to teach him to speak like a mobster…about the only thing he gets right is the line “forget about it” which sounds more like “fur ged abowd did”…and so it is with investments – clients need to learn to do the Mickey Blue Eyes and “forget about it”.

We’ve recently had a few calls from clients about their investment values – this is largely a function of quarterly or half-yearly statements just having gone out combined with the current volatility that is being experienced. Research shows that the more often you look at your investments, the less likely you are to stick to your long term plan/goals as it becomes too easy to focus on the short term volatility.

Unfortunately legislation requires that companies report frequently (how that happened is the subject of another post) and as a result clients are getting statements too often (in my opinion). Combine this with the ability to access the values online and the absolute glut of information by so-called experts it becomes too easy for investors to be distracted from their plans and to make decisions based on the short-term “noise”.

I am not advocating a reckless negligence of your finances but I recommending that if you are an investor (that implies that you are in it for the long haul) and you have an investment plan/strategy in place  then you need to learn to do the “Micky Blue Eyes” with your investments and “fur ged abowd did”. Give them time and they will come right!

Dilbert on Finance

The Dilbert cartoonist, Scott Adams, earned a MBA from Berkeley, worked at a bank (got held up twice at gunpoint), and is worth millions. So we presume he knows a thing or two about money. In an interview with the Akron Beacon Journal, Adams says he read about a dozen personal finance books and began working on one himself. However, he found it all boiled down to these nine points and he “couldn’t figure out how to fluff it up.”

1. Make a will.

2. Pay off your credit cards.

3. Get term life insurance if you have a family to support.

4. Fund your 401(k) to the maximum.

5. Fund your IRA to the maximum.

6. Buy a house if you want to live in a house and can afford it.

7. Put six months expenses in a money market account.

8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.

9. If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.”

If we adapt these to South Africa they might  read something like this:

1. Make a will (you are going to die one day and the consequences of not having one if you have beneficiaries is too great to contemplate).

2. Pay off your debt including your credit cards and home loan.

3. Get life insurance if there is financial risk at your death (i.e. you have a family to support or debts that need to be paid including estate duty).

4. Fund your pension fund to the maximum (that the company allows).

5. Fund your Retirement Annuity to the maximum (if you dont have a pension fund).

6. Buy a house if you want to live in a house and can afford it. I guess the same logic would apply to buying a car – if you can afford it.

7. Put six months expenses in a money market account (once you have paid off your debt).

8. Take whatever money is left over and invest 70% in an equity based unit trust or exchange traded fund (etf) and 30% in a bond fund or 100% into a balanced unit trust fund and never touch it until retirement. As South Africans, probably at least 20-30% of this should be offshore (i.e. out of SA).

9. If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.”