Weekly Thoughts

Weekly Thoughts 26 April 2019

The disruptive month of April is almost over. School holidays, public holidays…. We did the beach thing (dog included) and a trip to Johannesburg following a school rugby festival. The interruptions that public holidays and other holidays create are not beneficial to business. Tomorrow’s public holiday loses out on that though.

A thirty-something year old client died of cancer in the last 10 days. She had struggled for a few years. Life is not kind.

From an investment point of view, the first quarter of 2019 has produced improved investment figures from a capital growth point of view, even though economic news has not always been great. Markets around the world recovered from a poor 2018, although for those investing on a monthly basis, a year of flat or negative returns is great for your regular contributions. You keep buying while there is a sale on.

Weekly Thoughts 05 April 2019

This morning I had my usual first-Friday-of-the-month colleagues breakfast. The four of us. The qualified hardly-practiced lawyer, the guy who has been through cancer already, the guy who has experienced too much pain with a disabled son, and then yours truly. Whatever I am defined by. Three of us ride motorbikes, so we have to work at getting onto industry topics.

Interesting, when we began meeting in about 2006, the sunrise breakfast cost us each R40. With a cappuccino thrown in. And the tip. Now it’s about R125 each, for the same thing. But that’s OK.

Today we spoke largely of the world of compliance and Know Your Client. (KYC) What we have to complete and check upon with each client. That it is a bother, but we have to do it. None of us want ‘politically exposed’ clients anymore. Or clients who move through countries that are on the terrorism watch list, or work for potential money laundering industries. Or clients who cost us too much time in relation to the potential earnings. This is going to be the biggest problem for so called ‘small clients’. Sounds really unfair and discriminatory, but a conversation we are all having. The smaller client could easily be ripped off by the agent who works through….

Weekly Thoughts 29 March 2019

A technical note today.

Correlation……. is a statistical measure that indicates the extent to which two or more variables fluctuate together. A positive correlation indicates the extent to which those variables increase or decrease in parallel; a negative correlation indicates the extent to which one variable increases as the other decreases.

In the unit trust investment world, if you are investing via a couple of different fund managers, it is sometimes good to have some level of uncorrelation between the funds you’re using, so that in different market conditions one fund might give you something positive when the others don’t.

As an example, Allan Gray’s Balanced fund is correlated with Coronation’s Balanced Fund to the tune of about 70%. Meaning the companies owned and the strategy of the funds have a fairly high level of correlation, but there is some variance.

However, Allan Gray’s balanced Fund has only got a 45% correlated with Marriott’s Balanced Fund. (Coronation about 48%) This means there is quite a difference between the management strategies, the companies owned, or percentages of them owned, and thus the funds could perform quite differently in the swings and movements of the markets, one fund not experiencing all the ‘downs’ when the other might. And so forth.

Good to have some differences of correlation in your portfolio in the savings years of your life.

Weekly Thoughts 22 March 2019

A friend of ours recently had a mild stroke. She is younger than us. She’s OK, but had no insured benefits to help her through it.

A friend and motorbike riding mate – we’ve summited Sani Pass twice together – recently injured himself quite badly while playing indoor hockey. Chasing the ball down the ‘field’, the wall arrived before he could get the flaps down. He hit it at speed. He has recovered, to an extent, but says he’s not sure he’ll ever be 100% again. He has temporary and permanent disability benefits, so financially he should cope.

Then I have a young client who is waiting for a kidney transplant. He has no kidneys at the moment. Does dialysis couple of times a week. Thank goodness his dad and I put some impairment benefits on the sons when they were teenagers. The 5 million has proved crucial in providing income and pay for expenses.

We don’t know when life’s horrible things will arrive upon us. There is no fairness in this game. We just need to know that we have a basic plan that will help.

Weekly Thoughts 8 March 2019

Last week was the week to take down your car’s odometer reading if you run a log book for SARS and it was the week to have paid your provisional tax.

Then on Thursday last week I attended a compliance training morning with a small group of advisers. Our compliance officer took us through what happens when the Financial Sector Conduct Authority – previously known as the Financial Services Board – comes to do an onsite inspection of our businesses. Something none of us look forward to, when it inevitably happens one day.

The one thing that stood out from the morning, was how the requirements on us to collect updated FICA from our clients was now going to be more …… bothersome. From having to collect updated info once a year, we now have to collect updated documents every time a client does new business with us, but still with a minimum of once a year. So unfortunately, expect me to be more of a nag around this issue.

Weekly Thoughts 25 January 2019

For Christmas my family decided it would be a nice idea to buy a family present in the form of one of those bluetooth speakers that looks like a mini barrel through which you play your playlist on your phone. I have a very old sound system that my son once asked if that was what they called a Hi Fi. I built up this Hi Fi nearly 30 years ago – buying the separate speakers, building the correct size boxes, buying the best-at-the-time Technics 80 watts per channel amplifier together with an AIWA double cassette tape deck and a Technics CD player. All this made for a very serious Hi Fi at the time. It still works fine, although some speakers need replacing. Back to the family’s Christmas present.

This bluetooth speaker was advertised on the web and in the usual far-too-many supplements in the newspaper paper at R399.00. But the advert said you’d save R100 when buying it at R399.00. Anyway, we bought this thing. I paid the R399.00 by credit card and we wrapped it and opened it again on Christmas Day. The issue is, after spending R399, I have as yet not noticed the R100 that the advert said I’d save being deposited (back) into my bank account.

It brings me to the point that in my opinion, these forms of advertising are dangerous and should not be allowed. I think there must be a huge number of people that buy more than they would have just because they think they are saving. They’ll think they should buy that thing they want because they’re saving on what the price usually is – although very seldom would they have seen the price being listed as any other amount.

In this example, we only save if we don’t spend.  We shouldn’t buy something just because it is advertised as less.  I think adverts should be allowed to say that the price is at a discount at R399, not that you will save R100.

Weekly Thoughts 18 January 2019

All my clients have survived the silly season, which is good. I know this based on the principle of no news is good news. What always makes this significant at this time of year, is when one considers the number of road deaths during the festive season. One news report puts it at over 1600. That would be about 5 airliners going down during the same period. As I get older I get more and more acutely aware (probably bad English) of road safety when travelling. And my own discipline when driving.

Weekly Thoughts 21 Dec 2018

In my last newsletter – 3 weeks ago (shocking) – I wrote about short-termism, a topic from a brochure received at an investment presentation.

The other aspect I wanted to write about from that brochure, was around some interesting information on a few global companies. Companies that will last, last through global Trade Wars, Trumpism, Brexit, the Yellow Shirts…. Etc. Here are a couple of examples given to us:

Colgate-Palmolive. More than half of the world’s population buy Colgate products. Go look in your house, you’ll have them. An interesting thing here, is that we were told that in India most people only brush their teeth every three days. So imagine the growth potential in sales when these “most people” can go to every two days. Colgate is a massive player in the Indian and Chinese market.

Nestle, with over 400 factories in 86 countries, owns over 2000 brands and sells over a billion products in the world, every day.

L’Oréal, the world’s largest cosmetics company, expects to add one billion new customers over the next 10 years, due to urbanization and more and more women entering the workforce.

None of those political interference problems mentioned above are going to stop someone buying the toothpaste they need or the food they need or the beauty products they want. So profits and dividends will continue.

Weekly Thoughts 30 November 2018

While scrounging around in articles I keep to maybe use for these newsletters, I found an investment brochure from October that I had been keeping after attending a fund manager presentation. I had highlighted only a couple of pages and points to share.

The first is a term called short-termism. Warren Buffet suggested that there was a danger around short-termism. A comment from Donald Trump was that when he asked some top business leaders what would make business better, or easier, they said “Stop quarterly reporting and go to a six month system. It would save money.” I personally think unit trust investment reporting should do the same.

A measure of one of the stock markets vs. the average investor over 10 years to end 2014, showed that the investor who was making their own switches based on their own opinions and observations, created returns for themselves that were almost 50% lower than the market average. This is because they look too short and then try to time and switch their investments themselves. What is needed? Good selections in the beginning, for the right reasons, then leave it alone. Check once a year that your investment is still in your name, look at its value, check that the management company has remained sound, and leave it alone.

Thoughts from another page next time.

Weekly Thoughts 23 November 2018

Today is that day in the year (it’s become a few days now) where loads of consumers go shopping for things they don’t really need and might not have bought, under the pretence of saving. We don’t save when we spend money, we save when we don’t spend it.

The only thing I would need, not want, is clothing. I don’t like shopping for clothes at the best of times and am not very good at it. I also don’t do queues and crowds very well. So I guess I won’t be doing the Black Friday thing. But companies will make money, which is good. They won’t sell everything at a loss, so the listed companies that you and I have in our unit trust funds, will still make good profits.

For most shoppers however, they won’t be spending their own money anyway. They’ll be buying on credit. So the Banks make money too. Who loses….?