Weekly Thoughts

Weekly Thoughts 17 June 2022

This topic might be a bit depressing, but I think I should write about it. They are just my thoughts. They hold no disrespect. Just concern, for all of us.

Over the past six to ten months I have been watching (and walking through it with some of you) a good handful of clients going through various rapid health changes. Some of which have involved disability claims, meaning people that are (probably) still working, and some of which are what we might experience when we’re in – what my mother used to call – the ‘waiting room years’. But all of them, have brought the issue of a need for sudden care to the spotlight.

I believe that anytime from into our fifties and definitely by the time we’re 60, we need to begin to think about, or have already thought about, what we’re going to do when it all falls apart in a short space of time. When, because it’s not really an ‘if’, our bodies begin to break down and we need care soon. I do not think we should be leaving this matter until the age of 70, just because we’ve been lucky to have good health so far and we think we’ll have time to plan and change. So…… the questions I see, in no particular order or priority:

Who can look after you when you suddenly need it? Will you need to move to somewhere quickly when you need this because your current situation doesn’t cater for it? Have you thought about where you can move to? Have you ever looked at what this might cost? Do you have a cash lump sum available somewhere to help you get in? Will the place you go to, be able to take you shopping because driving might suddenly stop? Will the place you go to, be able to provide you with meals if you need this level of care? Can it provide for assisted living when you need it? If you want to be cared for at home, do you have a place for a carer to live? If you currently have a partner to look after you, someone will still end up being alone, and these questions then need different answers, to what they might be now. Is there someone you need to tell your plan to?

There are more questions, which I know will cross your minds. Life doesn’t always give us a long notice period for these changes.

Weekly Thoughts 27 May 2022

I’ve written about it recently and been at some of you personally (apologies), about having a good annual medical check-up, especially as we get older. It actually should be from when we turn 40 onwards.

Well, yesterday afternoon I had my annual medical. I had the blood taken a week ago that my Doctor wanted – he wanted so many tests that the lady who drew the samples at Ampath joked that if she emptied my one arm, she’d have to move on to the other arm!

My Doc did the breathing thing, blood pressure, weight, prostate check (yes… that one!) then rest and effort ECG. The ECG machine asked; ‘Does the patient have a pacemaker?’ It even picks it up. He made me trot up and down these steps in his office to get my heart rate up for the effort test. So boring – every year I ask him if I can’t rather run up and down the road outside instead.

Well, besides living with all the consequences of taking on this life too adventurously, he was very happy with all the results. He said I am good to go for another year. It was a 45-minute appointment, but worth the process. A decent doctor will pick up anything serious before it’s too serious. It was this GP of mine that started me on the road for a pacemaker when I used to arrive for my medical with a resting heart rate of 32 or 33.

We need to do this thing. Men and women alike, whatever our different bodies require.

Weekly Thoughts 29 April 2022

My avid readers will know I haven’t written for a few weeks. I’ve not had much inside of me to say…..

But I thought to make myself go find some content this week. The result is that I have a couple of points and thoughts from various asset manager emails and video links that I get sent on various matters from time to time.

Sarasin – London chaps – brought the thoughts of how China’s zero-COVID policy was adding another angle to global economic woes because it is contributing to supply chain disruption. If you’ve followed any of this news, China has been quite heavy-handed in managing their rising cases. They’ve even compelled some factory workers to live in the factories they work in, in order to reduce movement and transmission. A bit depressing that.

Russell Collister, the Chief Investment Officer from FIM Capital on the Isle of Man, spoke in a video I watched about the first quarter of 2022 being difficult for markets simply because of inflation, let alone Ukraine and COVID and anything else, he said. Current global inflation is still largely a result of too much cash just being given out to people during and following the COVID story. He thinks inflation will continue for a while. He touched on wage pressure, agriculture and commodity prices, and interest rates. In times of inflation, he says that equities – shares – continue to give the investor the best place for some protection.

Russell is a great guy. When I went to visit FIM a few years ago to walk the floors, Russell took me sailing on the ocean and then for a drive around the Island in his BMW along the roads used for the famous TT motorbike race. When I quizzed him about security of life living in the oldest continuous parliament in the world, he told me that they were never quite sure where their house keys were!

These above factors might continue to keep markets under pressure for a while, with capital growth being slow. Which means it continues to be a season to get available cash into the markets, not keep it in the bank until the markets have already recovered by their first 20%.

And now the newsletter that wasn’t nearly become too long.

Weekly Thoughts 18 March 2022

I was going to write about this in the week that it happened, but inspiration for the right words wasn’t coming to me.

A couple of weeks ago, the legendary Australian cricketer, Shane Warne – possibly the best spin bowler of all time, (just to help those non-cricket literate readers) died suddenly at the age of 52 of a suspected heart attack. Very, very sad.

It brings thoughts to me about how we look after our health.

Many of you know that I had a pacemaker fitted just over a year ago. If it wasn’t for my attentive GP doing an ECG during my annual check-ups, and never liking what he saw, together with two amazing cardiologists, I could quite easily not be here today. My heart rate had been too low, often going into the 20s at night with up to 10-second gaps between beats. No wonder I sometimes woke up at night gasping for breath. I wouldn’t have died of a heart attack, but simply of my heart stopping due to load shedding. Now it doesn’t go below 50 bpm.

I had what’s called athlete’s heart – training too hard for too long. Many sportsmen get it. Another cardiologist that initially saw me, simply said, ‘You must stop training. I heard you coming up to my office, you were taking two steps at a time. Stop training and your heart rate will go up again.’ “Doc,” I said, “that’s not going to happen. You must come up with another solution.”

There are quite a few clients reading this that have had me asking if they’re going for annual medicals after the age of 40 and then had me reprimanding them when they say no.

Don’t take this thing of having an annual medical lightly. The guy who used to service my electric gate died recently because he left it too late to have a prostate check.

Risk management and advice thereof to my clients is part of my job. Even if you don’t like me talking about it.

Weekly Thoughts 11 March 2022

Quite a few clients have asked me about their investments and the Ukraine war and what do they do and do we worry. Well, to begin with, there is nothing that we can do. Plus the problems and trauma of the little Ukrainian boy, shown multiple times on news channels earlier this week, walking along by himself crying, are far worse than our problems.

Yes, market values have dropped quite a bit and might go down further. But there is no point disinvesting. What do you do then? Lend your money to someone else by putting it in the bank and then investing again when markets have got back to values above what they were when you came out? Then you lose.

The world has survived wars before. Stock markets have survived wars before. Consumer goods and the stores that retail them will survive…. because people will still buy plasters and food and toothpaste and shop at Pick ʼn Pay and Spar and Tesco while this is going on and long after it’s over.

But I have read a lot about what fund managers are saying. Last week I phoned a Marriott fund manager directly to ask him what he thought:

“Kev,” he said, “We don’t hold any direct stocks in Russia. Yes, the oil price is a worry (travel less and drive 10km/h slower – Ed) because the consumer might have less money for spending. But basic necessities will continue and defensive stocks (like toothpaste and plasters and food) will be more relevant. We expect global interest rates to go up, but in the long term, there is no need for panic.”

Growth manager Orbis has a 2% exposure to Russian shares – so this portion might take a knock. Foord feels their funds were already defensive and have coped OK so far, and many other managers are saying they remain vigilant to try and manage the volatility as best they can.

So, over the long term, the world will bounce back. In one way, it’s a time to invest now when markets have gone down. And as I’ve said…. Our problems are nothing. Just look at what they’re living through. We have potholes to dodge. They have hunger and missiles and homelessness and death.

Weekly Thoughts 18 February 2022

I’m talking about capital growth/decline of investment funds this week.  Sorry…. This topic can be a bit boring.  But it’s been an interesting exercise for me, so I thought to share it with you. 

A number of clients have recently asked me about Foord’s investment performance and whether or not I should be switching them out, specifically after their 2021 returns were lower than many others.  It’s a hard thing this: the idea of when do I decide to whole-scale begin switching clients out of a particular fund or fund manager.

As it so happened, on Tuesday morning this week I joined a live, online presentation by Foord Asset Managers.  (Just for some useless information, Foord is pronounced as in the car: Ford).  Then for a few hours the same afternoon, I took three different clients’ investment portfolios and played on a spreadsheet with their own return figures.  (The results will be an indication for me of all my clients in those funds and with the fund manager.) 

My plan was then to compile a long email to my Foord consultant, to ask some questions about the direction their funds were headed for the next couple of years.  Obviously, I had already heard the feelings and opinions on this question from the Asset Managers talking in the morning, but it still helps getting the inside line from the consultant.  All this to try help me decide whether it was time to advise clients that we switch out of Foord.

As it then so happened, my Foord consultant fortuitously happened to contact me on Tuesday afternoon asking if I could meet up on Wednesday for a chat.  And so I had this debate face to face with her about their returns and as to what Dave Foord (the boss man – who I’ve met and had tea with) and his team were thinking about their funds going forward and why should I keep my client’s money with them.

I used various periods of time when I was playing with the numbers:  

  • the single year of 2021,
  • then only January 2022,
  • the 6 weeks so far of 2022,
  • the two years of 2020 and 2021 in one-line measurement,
  • the last 3 years in one measurement,
  • and for three local Balanced Funds, the last 5 years.

This is what I found, using five different Global Equity funds.  An equity fund means a fund that mainly just holds shares of companies on stock markets around the world, it does not hold bonds or cash or property.  [I hope the table comes out legibly for you on your side]

What did I find?  That if I look at two and three and five years, there isn’t much reason to move away from Foord.  And I really should only be looking at 10 years and longer, for funds that are used for growth of capital.

Interestingly, in the last 6 weeks, when world markets have declined already quite a lot, Foord didn’t do too badly by comparison in January and the first 6 weeks of this year. 

My consultant reminded me on Wednesday that Foord say ‘Safety First’.  They say always think of this when you think of us.  Their investment philosophy is a cautious one.  They admit to having moved to a safer stance on money management in 2021 before many other fund managers had done the same.  This made them lose out on some of the growth of the year.  They admit they might miss out on excess returns in the short term and that they did not win the race in 2021.  But 2021 was an unusual year they felt, what with the excess printing and distribution of US money into the US economy.  And with the expected rise in US inflation going forward and the potential draining of global liquidity, it might make them worth holding onto.  This would be the debate I would have in my head.

The honest truth is that my mind is not made up yet on this matter.  Am I going to take my own money in my Retirement Annuities away from Foord?  No.  But that doesn’t mean I shouldn’t consider the alternative for my clients.

These are the things you rely on me to wrestle with, to play with, to debate with and make decisions about.

Weekly Thoughts 11 February 2022

I said I would explain this week what companies are that we call ‘Price Makers’ vs. those that we call ‘Price Takers’. I’ll use a few examples of Price Taking and then I’m sure you’ll catch on very quickly.

I belong to the sailing club down here at Midmar Dam. Every so often, someone puts up something to sell on the club’s WhatsApp group. Last year I sold a very old Laser1 (type of small yacht) via the group. I advertised it at R4000 and had a buyer the same day. Gone. However, many boats and other sundry items are put up for sale and the seller says; “make me an offer”. Bob comes along and says I’ll give you R2000 for that. The seller says “sold”.

In this example above, I was a Price Maker and the other seller was a Price Taker.

When you go into Mug n Bean for coffee, the price is set on the menu. You cannot bargain with the store owner as to how much you’re prepared to pay for the cup. Mug n Bean is a Price Maker. But when you go into an auction to buy that piece of old furniture that’s just going to collect dust in your house now instead of the previous person’s home, the bidding process of that sale makes the auction and the sale a process of Price Taking.

Let me get to some other products as examples. Iron ore is sold through a process of Price Taking. Most resources will be Price Takers. Kumba Iron Ore company is an example. These companies often scrap their dividends for a number of years, because they struggle with keeping pricing high enough. Oil is a Price Taker, so is Gold.

But Coca Cola, Nestle, Colgate Palmolive, Unilever……. these companies set their prices themselves and are therefore Price Makers. You cannot bargain with Pick n Pay as to how much you pay for a tin of hot chocolate or a tube of toothpaste. You go look in your home for the number of products that you have bought from these companies – you’ll surprise yourself. Their customer demand is so consistent that they can set and dictate their price. Nestle has paid a dividend for 40 consecutive years and grown that dividend for most of those years too.

The next time you buy those pancakes at your child’s sports event, at 9 am the stall owner will be a Price Maker. At the end of the day, when he wants to get rid of his leftovers, I guarantee you could push them to become Price Takers.

You want your investments, the underlying unit trust funds and shares, to be predominantly made up of Price Makers.

I hope my examples have helped you to understand something new.

Weekly Thought 04 February 2022

Last week Friday morning I managed to lure the one senior fund manager from Marriott to come and spend a few hours with me again in my office. It’s either my company or my coffee that he likes – I’d like to think it’s the former!

It becomes a great time for me to go through various things that I put on an agenda. He also always brings a great list of stuff in his head that we talk about – things that cover both global economic topics plus things specific to Marriott funds and/or systems. I always check with him how his boy is doing too. His son is a ridiculously good cricketer – usually scoring massive runs for his high school’s first team.

Anyway…

On Friday we touched on SA interest rate increases, the US who will begin raising interest rates – which have been at 0%, he spoke at length about how the US simply printed and gave out too much money to too many of its citizens during the pandemic – causing inflation, he then explained how 16% of global listed companies profits (I’m not sure if I’m getting the singulars and plurals all correct there. My English teacher client will correct me!!) are not covering their interest costs alone. That’s a bit frightening. It means retrenchments or closure of businesses.

We went on to speak about income and price gains or losses of Marriott’s individual funds over 2021 and then ended by spending a lot of time talking about how Marriott’s equity holdings are always predominantly what we call ‘Price Makers’ – companies with strong balance sheets and good cash flows, consisting of brands that are basic necessities in most of our lives.

Next week I am going to explain what we mean by companies that are ‘Price Makers’ vs. companies that we call ‘Price Takers’. It’s an interesting thing.

Weekly Thoughts 10 January 2022

Yes, it’s Monday. But there was nothing in my head on Friday. The inspiration came over the weekend, so I thought to write today.

I wasn’t going to write about this matter until Covid was completely done and out of the way – because there are people still battling – but that might actually still take a long, long time. Possibly years, not months.

I have over the years while doing basic financial planning with clients, often looked to see if someone could manage to survive without a job, or survive if their business started to struggle, for three months. Meaning, do you have enough savings somewhere, to cover living expenses for three months.

I knew a while ago, after watching so many folk battle with job and business income, both clients and just looking around the world, that after Covid, I would change this advice, this opinion, and would begin to help clients look to build the ability to survive for double this time, to have the ability to cover living expenses for six months. I think there have been sufficient reasons and lessons for us to look at this as a better plan in the future.

The spaces and mechanisms to create and store this liquidity can be different. A very good place, and what I have done over the years, is to pay extra funds into property debt until one has the capacity to withdraw from your access bond sufficient funds for the above reasons. Straight forward money market accounts can work and discretionary unit trust funds can also work. But regardless of where the ‘emergency’ funds sit for you, it requires a timeline of being able to spend less than we earn, so that we can build up the cash, while we pay for the regular expenses that we have.

So I will begin to look, advise, and ask over time if you can cope for six months with no income. This will become my financial planning approach.

Weekly Thoughts 17 December 2021

It has been on my mind a lot of late, possibly because I’ve had three long conversations around this topic of ‘wealth perception’… for want of a better term…. with different people over the past couple of weeks. Many of you think this way already, so please forgive me while I comment on this boring topic again.

It is about remembering that the houses we live in, and the personal cars we drive, are not assets. You might own them – if the Bank doesn’t – but they still do not put income into your life and you still cannot ‘use’ their value to help you through the expenses of daily living. They are tools, that we have to have and use, and they get us through this concept called life. But they are not part of our real wealth, they are not assets in our life, unless and until you can sell them, make a profit, and don’t have to replace them.

Just a short admin point for my clients who receive a monthly income from their Marriott investments: With the usual date of payment of the 25th being a public holiday, along with the 26th and 27th being public holidays as well this year, payment will only be effected from Marriott on the 28th of December. Depending on your bank, you would only see the funds in your account this month anywhere between the 28th and the 30th. I hope that’s OK for all of you.

Safe travels, if you are travelling at all over the coming season of holidays.