Weekly Thoughts

Financially Speaking June 2007

Yesterday is history. Tomorrow is a mystery. And today? Today is a gift. That’s why we call it the present.

Dear Client,

Our town; so quiet this week what with the strikes. I mean, compared to Johannesburg it’s always empty. But still. I understand their motives, if not all methods. I think that there would be enough money for greater state employee increases if we just had a few less large black Range Rover Sports driving around at illegal speeds. And then, as Evita Bezuidenhoud commented recently; “I am impressed with KZN. They have all that stuff about HIV, the homeless, crime etc sorted out so well that they can spend their time and energy and money on street name changes.” Puts it in perspective I suppose. Budgeting and prioritising should happen at all levels. And in my opinion, decent salaries come before street name changes. Anyway, there we have it. My thoughts.

Investment issues

Last week I attended a Marriott Asset Management presentation given by their CEO, Simon Pearce. Very good; both Simon and the presentation. (In discussions with him afterwards, he said to me that he would do a personal presentation to groups of my clients and so I will try this both locally and in Johannesburg.) To his presentation:

His view on local economic indicators:

  • We are in a rising interest rate cycle in South Africa.
  • The average SA household is spending 73% of disposable income on servicing debt.
  • We are at a record high current a/c deficit and if we cannot fund this, the currency will be negatively affected.
  • The record capital inflows into SA in 2006 of R140 billion, can go away in a flash which will put pressure on our currency.
  • SA stocks are overvalued.

That brought him to the main theme of his presentation. Speaking about Marriott’s International Income Growth Fund, which most Marriott investors participate in, in one way or another, and the global economy – with a slant on encouraging us to get clients to invest internationally.

He says that too many investors worry about price growth and not earnings and earnings growth. You’d never invest your capital in a business that did not pay you an income. Capital growth (price growth) will come from income and income growth. So capital growth is a function of earnings growth. Capital can be wiped out, even capital invested in property he says. He went on to give an example of why invest locally in Standard Bank shares that are yielding 2.5% when you could buy Barclays Bank at 9% which also happens to be a much larger bank operating in economies with lower inflation.

He spoke of how Marriott’s International fund is a low risk balanced portfolio with a flexible mandate that does not invest in emerging markets. He told us in depth of the team they work with in the Isle of Mann – an impressive group. He finished by showing us that this fund had done 42% Rand terms to date end March 2007 and was the top performing fund of all local asset swapped foreign funds. Some of you are in this fund via asset swapping and some of you directly via foreign allowances.

Their strategy remain solid: they will not always outperform others, but when price catches up with income; they will probably always be at or near the top. Warren Buffet invests this way. It is a fund that holds ‘Old World’ blue chip stocks and low risk bonds.

Great fund. Great Asset Management Company. OK, OK, so they are taking me to the rugby in Durban next weekend!

Until next time

P.S. For those of you who receive this by snail-mail and wonder if you missed May’s copy or if that month was cancelled due to lack of interest, no, I missed a publication!

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.

Financially Speaking April 2007

Following the rules will not get the job done.

Dear Client,

In February this year, I woke up one Saturday morning and decided to go to Durban for a swim in the sea. Now although there’s a perfectly good highway from here to there, I decided to join 100-odd other silly people and went there by canoe via the Duzi Non-Stop canoe race. So off we set at 5.30am and went along the Tourde-Valley-of-1000-Hills in KZN. My partner and I arrived at in Durban at about 4pm, just in time for tea. What was the first thing I wanted to do? Hug my children.

Now here’s the thing: each and every time we say goodbye to these or other special people in our lives, know that it might be the last time. Even though my family was possibly in more danger than I was that day by driving down to Durban via the highway, I was acutely aware of the task and challenge and environment that I had put myself into. Where am I going with this?

Three clients have, over the last 10 days or so, experienced realities which we don’t want to experience. The first has had a group of friends experience a horrific vehicle accident in Mozambique. One death, one flown out by medical rescue helicopter because he had medical aid, another left at the side of the road for hours because he didn’t – the mates had to come up with the hundred’s of thousands of Rands to evacuate him, another now aware that his disability protection is virtually non-existent, but it’s now too late for that. The next client was held at gun point, tied up and left in the fields of his farm while his bakkie was stolen and the third, a client and very old and best friend of mine was also held up at gun point in his place of work in Johannesburg, while their offices were robbed and his vehicle stolen.

It is with huge relief that my clients are all OK. But it is with a bump that I realize how much of my job is about ensuring that our lives are ready. Ready for loss: loss of life, loss of ability, loss of income, loss of things. I have spent, and it has been necessary, a huge amount of time over the past year focusing on the understanding and selection of asset management techniques both locally and internationally. But maybe I need to ensure that I’ve remembered the essentials of risk and estate planning every so often and ensure that I’ve been forthright in highlighting areas of this need where I see them, and not making only token mention of them. Starting with myself and also doing the same for you. And when they’re understood and necessary, they need to be urgent.

Investment thoughts…

My thoughts here are not linked to the above in any way and neither is this supposed to be a sensationalism letter this month.

As time goes by and I watch local and global lifestyles and trends, both politically and economically, I am more and more convinced that it is only prudent, if not logical, to ensure that some of a person’s wealth is based outside of the restrictions of their country of residence. To be specific; you need to have some of your investments outside of South Africa. In the cash and unit trust type investment world, this means that you have maybe made use of your exchange allowance and invested abroad, with these funds being able to be deposited into a foreign bank account. In other words not done via what is known as asset swapping, where the money has to come back to a local bank account. I think that if you have the wealth, you need to make this a goal, so that you are more globally invested and some of your wealth is globally accessible.

Until next time

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.

Financially Speaking March 2007

In life we need to be defined and accepted by who we are and not by what we do or achieve. This, is selfacceptance

Dear Client,

So the budget speech has come and gone. How do you benefit?

  1. Tax brackets move again; individuals will pay less income tax.
  2. Retirement fund tax has been scrapped. The funds in your retirement annuities and pension or provident funds used to be 9% on interest and property income. This is now gone and is a very good thing. It makes all retirement fund vehicles very economical investment tools. (As long as the vehicle is efficient)
  3. The estate duty abatement has been increased – from 2.5 to 3.5 Million Rand.
  4. The amount for individuals to make tax-free donation has increased, up from R50 000 to R100 000.
  5. The amount of tax-free interest or rental income you may receive from your investments has increased yet again.
  6. Capital Gains Tax annual exclusion amounts have increased slightly.

It is the first one that you will initially feel in real terms.

Investment issues –

Thoughts and lessons about yields and capital growth:

One of Marriott’s Funds, their International Income Growth Fund, currently projects a forward yield of 4.5%. This means that if you have $100 000 in this fund, you will receive a yield, or income, of $4500 for the year. It is paid out bi-annually, so you get about $2250 paid to you, or re-invested, twice a year. Many people would say; “that is a poor performance, only 4.5% per year?”

Here’s the thing: This yield has nothing to do with capital growth. That is a separate function. The yield comes from the dividends and rental and interest incomes of the international companies held by the fund. Over a 4 month period last year from July to end October, this same fund experienced a capital growth of 15%, in US Dollars. Over just these four months! When seeing the growth I phoned the fund manager and asked him if the figures given to me were incorrect. He said no.

Warren Buffet, that ridiculously rich American investor, always said that price will follow yield.

Great funds will pay an income while experiencing capital growth.

Monthly financial advice:

Pay an extra R100, or even R50, into your bond/vehicle finance scheme each and every month. Even an extra R20 pm over another 15 years will make a difference. In order for this to work two things need to happen:

Firstly, it must be easy to do. So if you haven’t yet done it, set up your home internet banking to facilitate these transfers.

Secondly, your bond cannot be a place for withdrawals for anything but emergency expenditure. The extra payments must stay there for the rest of the bond’s life.

Until next time

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.

Financially Speaking January 2007

Perspectives of the past, thoughts for the future; the job of History

Dear Client,

The silly season is over again and the clear winners by a long margin are ……. The Retail Stores!! Coming in a close second are the Banks with all the increased credit used for purchasing beyond budget and third, also not far off; all the spoilt children.

Amazing how many billions of Rands the retail stores have collected. A frenzy of activity; each year we all have something to mutter about it. And next year, we’ll all do it all again. The best parts of my Christmas were, firstly, my family being alone on Christmas Eve, singing Christmas Carols together in our lounge at the tops of our voices accompanied by a CD. Our kids loved it. And then secondly, being a kid with my kids on Christmas day, playing on a ‘slippy-slide’ with them, their cousins and their uncle on a small farm in the midlands. We were all a mess and covered in dish wash soap. Then we all jumped into an outdoor Jacuzzi and made it into a bubble bath.

These times create the memories, the laughs, the joy. They consume little money and are what memories are made of. Oh to increase the balance in our lives.

Investment issues – 2007: What does it hold?

Bulls or Bears for this year’s stock markets? Will the market go up or down? Who knows? A year ago it was at 19 000. Now it’s at 24 000 odd. All I know is that it will move. If you are investing for the right reasons then there should be nothing to worry about. If you are a speculator, well then that’s the game. My Lakeside Investors group and I are confident that if we’ve put you into the correct investment strategy then the Asset Managers that we are using will competently do the rest. 2006 was for us a year of buttoning down our investment strategies, asset managers and fund selections. 2007 will be the year where we fine-tune these strategies. I personally don’t think we’ll make many changes at all. I think we have done a job that is sound enough to last a couple of years. Our job remains to ensure that our chosen asset managers remain focused and on top of their game, to watch for any political instability within these fund houses, to make changes to you, our client’s portfolios when necessary.

Last year RMB Asset Management gave us a personal audience. Our goal this year is to see if we can get the same out of Allan Gray.

Monthly financial advice:

A simple and basic thing here:

When using a tap in your kitchen or bathroom for a brief moment to quickly rinse a toothbrush, swallow a tablet or take something off your finger etc, develop the habit of ensuring that you do not use the hot water tap for these quick, little things. Even though you are not running the tap for long enough to get hot water out of it, by emptying the pipe of the head of cold water, hot water from your geyser will have replaced that space in the pipe. As you draw these little bits of water out of your geyser, it has to pull in cold water to keep full. That cold water reduces the temperature in the geyser thereby causing the thermostat to switch the element on in order to raise the temperature again. This draws electricity which, as you can see, was actually a waste. The geyser is one of the greatest uses of electricity in your house. So do this and save. (Eskom should pay me for this!!)

Until next time

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.