Weekly Thoughts

Weekly Thoughts 7 September 2018

A thought came to me while listening to the news a couple of weeks back and then while watching the economic indicators moving all over the place.  It involves issue around the exchange rate, after the Rand weakened again

We all want the Rand to strengthen to see the price of petrol and other imported goods come down.  For people importing goods for their business, they want it to strengthen so that their product is easier to buy in Rands.  But sometimes we would want it to weaken.

Exporters might.  Folk living in South Africa earning a British pension would want it to weaken, so that they get more Rands this side.  We might also want it to weaken so that our offshore investments that are priced in Rands (appear to) have grown in value.  I made some quick calculations this morning.  I took one client’s offshore unit trust investment and measure that they had a 12.3% capital growth in just the last two months.  Sounds good.  But it’s a false growth.  The underlying international assets have not actually gone up that much if measured in Dollars or Pounds.  If we were wanting to liquidate an investment like this, then we can benefit from this false growth.  But if it’s part of our long term investing, then what do we do with that ‘growth’?  Nothing.

It feels like many of us seem to want the Rand to go both ways, all the time, for different reasons.  Luckily we can do nothing to control this.  So better not to lose sleep over it.  Just a thought…

Weekly Thoughts 03 August 2018

On Wednesday this week I listened to the clever people from Investec. Two fund managers covered various topics. Markets, Facebook’s loss of value, trends of electronic gadget dependence by the modern generations, the size of economies of individual cities in China being bigger than some countries, and a few other things. Then one of their Directors, always a good speaker, compared where we are now, and potentially going forward as a country, to where we would have been if Cyril Ramaphosa had not won in December. He is optimistic and believes that we are far better off, on various levels, now and for the future, then had the vote gone the other way. He wasn’t political, just objective.

Then this morning was my monthly breakfast session with a group of colleagues. The normal topics of investing, clients, motorbikes, our children… were touched on as usual. But a topic we spent a lot of time on today, was the real-life experiences of a colleague who has recently been through the cancer and treatment and medical bills experiences. And he’s not finished. You learn a lot when it’s a colleague, because we talk the language of benefits, medical aid, disability, income replacement, what one should have done….

He is on the same medical aid as I am, so his real time experience was of interest to me. I learnt that I have R220 000 per annum, per family member, of out-of-hospital oncology benefits. For him, this was about R200 000 short in the first year of treatment. I asked where he got those funds from. His dread disease pay-out, he said. OK, so I have that. Coping on monthly income? He had never taken out monthly income disability benefits – which could have paid a temporary benefit while incapacitated. I have that. Knowing how long you might live – this was more difficult. Because there is emotion.

He has since implemented some benefits on his children who are over 18 years old. I will do this. The day my son turns 18, I will begin some small amount of particular risk benefits. The day people start working, they should cover themselves enough to not have to go back to their parents to take care of them.

Retirement

My son asks me the other day, while we’re out having a driving lesson in the forest in my 30-year-old Pajero, that Paul, a mechanic we use, “owns his own business hey, so he could work for as long as he wants to?” And so, I broached the concept of retirement with him.

I explained that someone who is employed will have a contract with their employer that defines the age when they have to leave their job. That this could be 60 or 63 or 65. In this way, I explained, the employer has the ability to reduce or replace staff. I went on to explain that such a person has to then have saved enough money, as they might no longer be able to find another job. But a self-employed person, or someone who owns the business, like Paul, or me, can work for as long as they like, as long as they’re physically able to do what they need to do. Paul must be able to climb under a car or bend over into an engine bay. I need to sit, and walk, and move, and think, and talk. But if our bodies or minds can no longer can do that, we’d also need to have saved enough money to no longer be working.

Modern concepts and life expectancies talk about how the idea of retirement has changed. That people will live longer and work longer. But in reality, most of us reading this that are still working, will be faced with the reality that one day we will either be told to pack our up desk, or we’ll be too frail to work, either physically or mentally. And hence will need money.

Weekly Thoughts 29 June 2018

I began this mail the night before last, while overnighting in the bustling village / town of Cathcart in the Eastern Cape, staying in a 160 year-old stone cottage, which I found in the clouds on Air BnB. Not sure if there is even one horse in that town. So the label would not even work.

It’s been a while since I’ve travelled through those parts of the poorest province in the country. Nothing seems to have changed in the past 25 years. The poverty is still obvious and bad. Towns of Mount Fletcher, Maclear, Ugie, Cala, Lady Frere – particularly bad – haven’t changed. And I don’t see change in the next 25 years. Maybe more. What brings economic change? How will jobs and industry come to the area? They won’t.

There was much to remind the family of our wealth. While most of us continue to chase something we still feel entitled to or simply want, here were many stuck in the cycle of poverty. There, but by some or other privilege, go I.

Marriott Fund and Share Management

Yesterday in Pietermaritzburg we were able to listen to the clever people who manage and trade and look after Marriott’s offshore / international funds and share portfolios. They sit on the Isle of Man and come travelling around South Africa to see us once a year.

They spoke of the various companies they buy and own in the portfolios and around a few of the ‘noises’ in the market place that affect stock markets, like Trump, international monetary policies and population changes. We also had the man speaking to us who looks after the physical property holdings that are owned around the UK by the portfolios. There are 17 such real estate holdings. Mainly warehouses. He talks about leases, yields and tenants.

They chatted through the obvious of market values being up and down over the last while – and the relevance or lack thereof in some instances – with a good quote being left with us: “The stock market is the only market in the world where customers run away during a sale”.

Asset Managers

I had a good visit to the ‘new’ asset manager in Johannesburg two weeks ago that I mentioned I was going to visit. I liked them. The smallness, (they only have around 22 billion Rand of assets under management) the philosophy, the accountability. I would have liked a slightly more…. team approach to stock selection, or even a buy-list created by a team, off which the fund manager may only buy those companies listed. This means that the manager would have the final say, but only buying companies from what the research team has collectively approved to buy, or not. They do not do this. The two managers may buy or sell as they see fit. However, they do have a team of eleven analysts, for research and discussion. So, there is a good process. I will begin using them where appropriate for clients for growth assets.

Interest Rates

The monetary policy committee did not put up interest rates this week. Good. But people getting income in the form of interest from cash don’t get an income increase. If rates go down, their income goes down. But remember, it is not the banks that pay you this interest. It is those of us folk who have borrowed money from the banks, (or via the reserve bank) who are paying off bonds and cars and education loans, who are paying you this income. We borrow at 10%, the bank gives you, the lender to the bank of your cash, 6%. For example. So, if someone living on interest in all or in part for income, wants the rates to go up, they are wishing it upon their children and friends and the public to pay more on their debt in order to provide more income.

I know I’m writing a bit, what’s the word – my English teacher client will no doubt correct me – obliquely here, but it is good for us to actually understand what the flow of income and borrowing is. If interest rates go down, the consumer pays a bit less for borrowing, thus has a bit more money to spend on consumer products, thus the consumer company makes greater profits, can then choose to increase their dividends to shareholders meaning increased dividend income to the investor. A better method of income generation and income increases.

When interest rates go down, the asset manager can do nothing but reduce the income they pay through to the investor. They cannot absorb the event or somehow keep the income at the same level.

Asset Manager

I briefly mentioned last week that I have identifying factors for selecting and retaining an asset manager to use for clients. I have not taken on a new asset manager for a long time now, even though I get at least one, maybe two approaches a year to use a company. I look for what they might have to offer me that’s different. Then I politely tell them that they have nothing and no thanks.

But there is a new (to me) manager that I have been looking at to slowly add to client’s growth assets here and there. I have had a good reference to them, done some initial homework and now next week I have set up an appointment at their offices in Sandton, with whoever it is that takes around the little guys like me. There I will do the rest of my homework around the due diligence questions I always have and get a tour of the building. Nice to walk the floors and see the traders. Then if I’m still happy, I will begin to use them.

Weekly Thoughts 04 May 2018

I had my Coronation consultant in the house yesterday. I enjoy meeting times with him the most of all my consultants. That might sound a bit unfair but maybe it’s because the shop talk is always pre-empted by conversations around our son’s school rugby and endurance sport in general. He is one of those people that rides his bicycle for too many hours a week and is about to ride the Sani to Sea mountain bike race. However, I still have the most academically interactive meetings with him of all consultants. This point excludes when I meet personally with a fund manager from any house.

Words that are thrown about in a typical, technical investment conversation include such terms as binary, carve out, equity, house view, speak to, centric, fixed return, drawdown, time horizons, expectations, short term, independence, mandate…. And others.

What is always just as important as the above business jargon, is that I need to be able to identify that an asset manager I use remains true to the reasons I selected them in the first place and that my identifying factors have not been changed by owners, partners, shareholders, etc. Coronation remains correct here.

Insurance Risk Benefits

An insurance thought this week, for those of us in the space where risk benefits might still be of relevance.

Many of us might get to a point in our lives when we are no longer able to look after ourselves and need some or other ‘frail’ care or maybe a live-in nurse to look after us. This has been something that I have thought about a lot. Seeing what clients and family at these stages of life are needing to pay for this care in retirement homes, has made me acutely aware of whether or not someone, including myself, will have saved enough to cope with this expense during the ‘waiting room’ years, as my mother used to call them.

In many cases, the costs are greater than what one would have been spending on looking after yourself in whatever place you were living. Also, while you and a partner are possibly still living together, the joint costs are definitely lower than when one of you moves into frail care. Suddenly there is now an additional cost of, currently, what appears to be anywhere from R12 000 to R20 000 per month. A significant difference to many people.

With all these thoughts in mind, a while ago I added a benefit to my Hollard life insurance policy which will pay an amount to me, or to a service provider, if I am over the age of 65 and in a registered long term care facility or being cared for by a registered medical professional. Currently this amount is R13 300pm, but it goes up each year and is close enough to the potential expenses for me to be happy with the amount and that it will make a real difference. In a way, it provides for the possibility of not having saved enough for retirement.

It has given me some peace of mind that this potentially burdensome expense can be catered for. You see, if I am the last one alive – we all start life as one and someone is going to be left alone in the end – my children don’t appear to be very excited about the idea of bathing and feeding me. Not sure I want them to either.