Interest rates went down yesterday by 0.25%. For those of us paying off HP debt such as a house or car, it is a good idea to continue paying the same amount you have been paying. You might need to check what the payment difference is after the first month of change and then create the routine of paying the difference yourself each month, or see if your bank can keep the same debit order going for you. You will now be paying the capital off a bit faster than before. A good thing.
My son and I were dealing with booking learners licenses in Howick on Wednesday this week, now that we’re 17. The elderly man who ran a little business taking ID photos down the road from the licensing offices, told us his story while busy with us.
He used to have a small shop across the road, he said. Business went well for 10 of the 12 years he was open for, selling gifts, stationery and this and that. Then larger shopping centres and retailers came into Howick due to the growth of the town, particularly into the retirement village sector. He said where people used to shop with him, enjoying the personal touch, it became simpler for them to buy everything at the large retailer, like Spar and Pick n Pay. So he had to close. And now needs to continue working.
I chatted with my son about the fact that many, or indeed any business, needs to know what circumstances could cause change in a way that will negatively affect its ability to continue doing well or operate in that particular location or customer sector. That a business must accumulate cash for lean times and to always be able to close down if need be. That it was wise to not take too much income from your business too early and to remain prudent thereafter.
I attended a day at Coronation’s Head Office in Cape Town this past week. We were a bunch of advisors meeting and listening to their clever people, the bosses and fund managers. They all have these funny words at the ends of their names: BBusSci, BScEng etc. I counted that they all have words made up of eight to 18 letters after their names. Some should probably add AdHd. The best speakers were the economist, she was informative and entertaining, and then the Chief Investment Officer himself.
In the evening they took us all out to one of those fancy restaurants where you choose from two items per course and where the food takes up 3 cm by 3 cm on a large plate. Way beyond my culinary culture. The KZN guys secured a table for ourselves at the dinner with our local consultant joining us. The fund manager who is the head of fixed interest also joined us and was sitting opposite me. Fixed Interest comprises the asset classes of Money Market funds and Bonds. A brief explanation: The Reserve Bank sets the interest rate for lending money in the country. Investment Managers can invest into various Bank’s Money Market funds and give you a rate of interest on your money. They also buy bonds issued by various corporates including governments. They might buy a bond that is to last for two years (the money stays here for two years) and the rate of interest paid to the bond holder is, say, 8.3% per annum, for example. These are fixed rates of interest. Hence the label ‘Fixed Interest’. These sort of assets will form a part of your Balanced Funds within your unit trust investments.
Anyway, so I was sitting opposite the guy who heads up this team at Coronation. A good guy. Much more fun at dinner than he was when presenting. There he was totally boring. I said to him that what us guys (ladies included in the term) listened to today, was information overload and that most of us would not have understood 50% of what they spoke about. On a deep technical level that is. I said that what is always important to me, is for me to get a feel that you know what you’re talking about and that you guys look after my client’s money in a very good and conscientious way. He got that. And this is what I came away with. That Coronation still does a very good job of looking after your money, have very clever people doing it, have a very stable staff complement and do what they are supposed to do well, never compromising.
As a teacher, the one problem I have is that most speakers don’t know how to get to the point and not go on for too long. But this is a skill they are not expected to have neither employed for. Just me being difficult!!
There was a man who bought a flat to rent for R100 000. The purpose was for rental income to help him out at retirement in years to come. The next month there was a similar flat in the same complex selling for R85 000. He decided not to buy it, even though he had the money and would get the same rent. Three months later they were selling for R110 000. So he bought another one. Got the same rent. Four months later they were selling for R125 000, so he rushed off to buy another. Got the same rent. A further two months later, one was selling for R91 000, but he didn’t buy this one. He preferred buying them when they were more expensive than his last purchase.
This analogy to investing popped into my head this past week, while pondering investor behavior and how many investors deal with value, wishing for it to go up before investing.
We often get confronted in a shop with seeing or being told about the ‘specials’. I’ve often written about these sort of spending habits. And so it was that on Monday afternoon this week, I had gone down to the local garage to buy petrol and then went into the garage’s convenience store. Can’t remember what I was going in to buy, but that’s not the point. Probably a newspaper. The very diligent staff member behind the counter always makes sure she’s told you about the specials. Buy a coke and get a chocolate at half price. Or two for the price of one. etc. In a local supermarket, they always have the buy-a-chicken-and-get-six-bread-rolls-free special.
My guess is that a substantial number of customers must take up these offers. I never do. I didn’t need the one coke anyway. So I don’t buy the coke just because I’m feeling that I’ll miss out on a cheap chocolate. I wasn’t planning on buying a chicken. So I mustn’t feel that I am missing out on free rolls.
Don’t buy the specials just because they are there.
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.
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….
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.
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.
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.