Financially Speaking August 2009

“The tragedy of life is what dies inside a man while he lives.”

Dear Client,

I thought that maybe for this month’s email, I’d write down a mixture of some short comments and thoughts that have come out of recent readings and asset manager presentations. There are no direct links between each comment.

Investment issues:

  • “We look for cash flows where we can get some form of certainty.” [Russell Collester, Marriott Offshore Fund Manager.] Russell is a resident of the Isle of Man and presented to us in Pietermaritzburg at the beginning of this month. He is also an international tri-athlete. So, Simon Pearse took him to swim the Midmar Mile route all by himself on the weekend while he was here. He swam it in a time of 26 minutes – very good actually, considering the current temperature of the dam. I asked him, “Do you have locks on your doors at home?” He said, “No. But it rains horizontally!!” What a decent guy he is. You can see his face on Marriott’s website at “About’ –> ‘The Marriott Team’.
  • Did you know; QUANTITATIVE EASING, is an extreme monetary policy process whereby a central bank will create money electronically in their own accounts in order to purchase government or other bad debt. This disproportionately increases the total money in circulation and the expectation is that it will help to jump-start demand and thereby stimulate a flagging economy. So there you have it – creating money out of thin air.
  • Are company earnings likely to grow? Are consumers going to spend more? Answer: Household debt to disposable income is at its highest in years and household savings vs. disposable income is at its lowest. So NO, not quickly.
  • Marriott’s Dividend Growth Fund was the best General Equity Fund year on year to end June 2009 at 15.35% capital growth, while the markets are still down year on year.
  • Approximately 60% of the total gain achieved in a bull market will occur in the first 20% of the bull market.
  • Risk management is not about measuring a number; it’s about the investment and portfolio construction methodology employed that produces those risk numbers.
  • The FTSE 350 and Dow Jones Industrial Averages were around 2400 points in the 3rd Q of 2001 and were 2400 points again in the 2nd Q 2009. This means that your international equity investment was potentially worth the same now as it was eight years ago after going down in 2002 and then very far up in 2007. [All dependent on how well the fund manager traded inside that time frame. – Ed]
  • Ride out short term volatility – remember that prices fluctuate far more widely than values. [Internalize this important concept. If, after a while, you still haven’t got it, ask. – Ed]

Monthly financial advice:

Spend and save…. Be careful of this marketing [or accounting] strategy, in these and all times.

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.